20210114Hemstreet Direct.pdf

ldaho Public Utilities Commission
Office of the SecretaryRECEIVED
JAN I \ 2021
Boise, ldaho
BEFORE THE IDAHO PUBLIC UTILITIES COMN{ISSION
IN THE MATTER OF THE )
AppLrcATroN oF RocKY ) CASE NO. PAC-E-21-01
MOUNTATN POWER FOR )
APPROVAL OF TIIE TRANSFER OF ) Direct Testimony of Timothy J. Hemstreet
TIIE LOWER KLAMATH )
HYDROELECTRIC PROJECT )
GENERATING FACILITIES )
ROCKY MOUNTAIN POWER
CASE NO. PAC.E.ZI-OI
January 2021
1
2Q.
J
4A.
5
6
7Q.
8A.
9
l0
lt
t2
l3
14
l5
t6
t7
l8
t9
20
2t
22
23
INTRODUCTION AI\D QUALIFICATIONS
Please state your name, business address and present position with PacifiCorp
dba Rocky Mountain Power (the "Company").
My name is Timothy J. Hemstreet. My business address is 825 NE Multnomah
Street, Suite 1800, Portland, Oregon 97232. My title is Managing Director of
Renewable Energy Development for PacifiCorp.
Briefly describe your education and professional experience.
I hold a Bachelor of Science degree in Civil Engineering from the University of
Notre Dame in Indiana and a Master of Science degree in Civil Engineering from
the University of Texas at Austin. I am also a Registered Professional Engineer in
the state of Oregon. Before joining PacifiCorp in 2004, t held positions in
engineering consulting at CH2M HILL (now Jacobs Engineering, Inc.) and
environmental compliance at RR Donnelley Norwest, Inc. Since joining
PacifiCorp, I have held positions in environmental policy and compliance,
engineering, project management, and hydroelectric project licensing and program
management. In 2006, I began working on Klamath Hydroelectric Project
relicensing issues and assumed the role of project manager for the relicensing and
settlement process in 2009. I have been involved in the negotiation of the various
settlement agreements related to resolution of issues associated with the Klamath
Hydroelectric Project since the Klamath Agreement in Principle was executed in
2008. In 2016,I assumed a role in renewable energy development, focusing on
PacifiCorp's wind repowering effort, and assumed my current role in June 2019, in
which I oversee the development of renewable energy resources that enhance and
Hemstreet, Di - I
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
a.
A.
complement PacifiCorp's existing energy resource portfolio. Although I have
assumed additional responsibilities, I have continued to maintain management
oversight of the Klamath settlement process.
Have you testified in previous regulatory proceedings?
Yes. I have previously sponsored testimony with public utility commissions in
California, Idaho, Oregon, Utah, Washington, and Wyoming.
PURPOSE OF TESTIMONY
What is the purpose of your testimony?
My testimony explains the process involved in pursuing a new federal operating
license for hydroelectric projects in general and the specific process that resulted in
the execution of the Klamath Hydroelectric Settlement Agreement ("KHSA"),
which provides for the transfer of four hydroelectric dams, the J.C. Boyle, Copco
No. 1, Copco No. 2, and Iron Gate (collectively, the "Lower Klamath Project") to
the Klamath River Renewal Corporation ("Renewal Corporation"). I will first
provide an overview of the Klamath Hydroelectric Project, the Federal Energy
Regulatory Commission ("FERC") relicensing process, and the Company's initial
efforts towards relicensing. I then describe the KHSA, the Company's analysis
supporting its decision to execute the KHSA, and the amendments to the KHSA.
Finally, I will describe the 2018 and 2020 FERC Orders that led to the creation of
the Lower Klamath Project, the Memorandum of Agreement ("MOA"), and the
Property Transfer Agreement ("Transfer Agreement") between the Company and
the Renewal Corporation.
a.
A.
10
11
t2
l3
t4
l5
t6
I7
l8
T9
20
2t
Hemstreet, Di - 2
Rocky Mountain Power
22
I
2
J
4
5
6
7
8
9
10
11
t2
13
t4
15
l6
t7
18
t9
20
2l
22
23
a. Has the Company filed other property transfer applications with other state
utility commissions?
A. Yes. In addition to this filing, the Company has filed property transfer applications
with the Public Utility Commission of Oregon ("OPUC"), the California Public
Utilities Commission ("CPUC"), and the Wyoming Public Service Commission.
The Company will also file a notice of intended transfer with the Utah Public
Service Commission.
SUMMARY OF TESTIMONY
a. Please summarize your testimony.
A. The Company's hydroelectric generation facilities comprise an important
component of its overall power supply portfolio. The Klamath Hydroelectric
Project dams have provided reliable, low-cost power since they were constructed
between 1903 and 1962. A 50-year license for the Klamath Hydroelectric Project
dams was issued in 1954 by the Federal Power Commission (the predecessor to the
FERC) and became effective in 1956. Owners of non-federal hydropower projects
are required under the Federal Power Act ("FPA") to apply for new operating
licenses from FERC. Relicensing is a complex and often contentious regulatory
process that takes many years to complete. The process requires consulting with
multiple federal, state, tribal, environmental and community stakeholders;
conducting and analyzing the results of numerous environmental studies;
presenting and documenting the results of studies and consultation in license
applications and other required documentation; and triggers an assessment of
necessary measures to comply with other federal laws such as the federal Clean
Hemstreet, Di - 3
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
10
1l
t2
13
t4
l5
t6
l7
18
t9
20
2l
22
23
Water Act ("CWA") and Endangered Species Act ("ESA"). To operate hydro
facilities and to preserve their unique benefits, licensees must seek new licenses
and demonstrate through the relicensing process that continuing to operate the
project remains in the public interest.
The Company pursued relicensing of the Klamath Hydroelectric Project
given the historic benefits provided to the Company's customers and the belief that
the Klamath Hydroelectric Project could be relicensed and operated economically
in conformance with environmental requirements. Throughout the relicensing and
settlement process, the Company sought to protect the interests of its customers by
controlling costs, reducing uncertainty and risk, avoiding expensive litigation, and
accurately assessing the impact of proposed regulatory mandates on the Klamath
Hydroelectric Proj ect.
Ultimately, the Company determined that settlement of the relicensing
process through the KHSA was in customers' best interests. The cornerstone of the
KHSA is the transfer of the dams to the Renewal Corporation, which will then be
responsible for their removal. Transferring 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. Further, the transfer will not adversely impact the
Company's ability to provide service to Idaho customers. The Company's analysis
demonstrates that the transfer of the Lower Klamath Project, under the terms of the
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. The KHSA and MOA also provide critical
Hemstreet, Di - 4
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
l0
ll
12
l3
t4
15
t6
t7
r8
19
20
2t
22
23
protections designed to mitigate risks to customers from the potential for escalating
costs and liabilities associated with dam removal.
Commission approval of this application will cause no harm to Idaho
customers. The Renewal Corporation is fully qualified to accept the Lower Klamath
Project properties and remove the dams. Furthermore, the transfer will reduce the
risk of further costs to the Company associated with dam removal. Approval of this
application will allow the Transfer Agreement to take effect according to its terms
upon FERC's approval of the Amended License Surrender Application ("ALSA")
and the license transfer application.
OVERVIEW OF THE KLAMATH IIYDROELECTRIC PROJECT
a. Please describe the Klamath Hydroelectric Project.
A. The Klamath Hydroelectric Project is located primarily on the Klamath River in
Klamath County, Oregon and Siskiyou County, California. The Klamath
Hydroelectric Project consists of eight developments including seven powerhouses,
five main stem dams on the Klamath River (Iron Gate, Copco No. l, Copco No. 2,
J.C. Boyle, and Keno), as well as two small diversion dams on Spring Creek and
Fall Creek, tributaries to the Klamath River, comprising the Fall Creek
development, and the East Side and West Side developments on the Link River -
the uppermost segment of the Klamath River. FERC originally licensed the
Klamath Hydroelectric Project in 1954 as Project No. 2082. This original license
expired in 2006. Since that time, the Company has operated the Klamath Project
pursuant to annual licenses. As described in further detail below, FERC issued a
separate license for a subset of the developments that now comprise the Lower
Hemstreet, Di - 5
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
l0
1l
t2
13
t4
l5
t6
t7
18
t9
20
2t
22
23
Klamath Project (Project No. 14803) in 2018 and kept the Klamath Hydroelectric
Project's remaining facilities under Project No. 2082. The Transfer Application
applies to Project No. 14803 (comprised ofthe J.C. Boyle, Copco No. l, Copco No.
2, and Iron Gate developments) and not Project No. 2082 (which consists of the
East Side, West Side, Keno, and Fall Creek developments).
The Klamath Hydroelectric Project is partially located on federal lands
administered by the Bureau of Land Management and the Bureau of Reclamation.
The first hydroelectric development, Fall Creek, was completed in 1903, and Iron
Gate, the last hydroelectric development, was completed in 1962. Keno Dam was
completed in 1968. A map of the Klamath Project is provided as Exhibit No. L
OVERYIEW OF FEDERAL RELICENSING
0. Please provide an overview of the federal relicensing process.
A. Under the FPA, FERC has the exclusive authority to license non-federal
hydropower projects on navigable waterways. Original licenses are issued for a
term of 50 years, after which a licensee may seek relicensing. FERC issues
subsequent licenses for a term of not less than 30 years or more than 50 years, with
FERC deciding the length of the license. FERC regulations require that a licensee
file a Notice of Intent to apply for a new license five and a half years prior to license
expiration. On average, licensing takes eight to 10 years, and some applications
have taken as long as 30 years. During the relicensing process, FERC issues annual
license extensions under the same terms and conditions of the old license after the
license has expired but before a new license is issued. The licensing process
requires FERC to consider the project's economic, engineering, environmental, and
Hemstreet, Di - 6
Rocky Mountain Power
I
2
J
4
5
6
7Q.
8A.
9
l0
ll
t2
l3
t4
l5
t6
t7 a.
18
19 A.
20
2l
22
23
socioeconomic aspects. In issuing licenses, FERC must give "equal consideration"
to environmental values and adequately protect and mitigate the effects of a project
based on environmental and other concems. In doing so, FERC develops or applies
recommended mitigation measures and attaches these and other conditions
recommended by agencies with authority to implement federal laws applicable to
the project, as conditions to the license.
What roles do state and federal resource agencies play in the process?
State and federal fish and wildlife agencies review applications and submit
comments to FERC regarding the impact the Lower Klamath Project may have on
the environment. Based on those impacts, state and federal agencies recommend
conditions to FERC to place on the license to mitigate the potential adverse impacts.
The FPA gives certain federal agencies authority to require FERC to include the
agency's conditions on the license. For example, the Secretaries of Commerce and
the Interior have the authority to require applicants to install fishways (fish ladders,
fish screens, and other measures protective of fish) at projects, and to require
applicants to reduce the variability of in-stream flows affected by the project.
What options does an applicant have if the mandatory conditions make the
project uneconomic?
The applicant has limited options. The applicant may accept the uneconomic
license, decommission and remove the facility, or pursue litigation and challenge
the mandatory conditions. The applicant has the option of selling the facility as
well. Because of the potential risks and liability associated with the removal of
facilities and the uncertainty of litigation, those options are seldom favored.
Hemstreet, Di - 7
Rocky Mountain Power
1
2
J
44.
5
6A.
7
8
9
10
1t
t2
13
t4
l5
t6
t7
18 a.
t9 A.
20
2t
22
23
Consequently, applicants often try to manage uncertainty by settling issues among
the various stakeholders before licensing is completed or by negotiating acceptable
decommissioning and removal outcomes.
Other than the FPA, what other laws must FERC take into consideration when
granting licenses?
Because licensing is a "federal action," FERC must evaluate the application under
a host of federal laws including the CWA, the Coastal ZoneManagement Act, the
National Environmental Policy Act ("NEPA"), the ESA, the Fish and Wildlife
Coordination Act, and the National Historic Preservation Act, among others. These
laws add significant time and expense to the application process.
The Company sought CWA Section 401 certifications for the Klamath
Hydroelectric Project from both Oregon and California (collectively, the "States").
In addition, ESA considerations are present at the Lower Klamath Project due to
the presence of threatened Coho salmon in the Klamath River below Iron Gate dam
and endangered Lost River and shortnose suckers that predominantly reside in
Upper Klamath Lake and its tributaries but also are found within the Klamath
Hydroelectric Project reservoirs.
Does FERC offer more than one relicensing process?
Yes. At the time the license application for the Klamath Project was developed and
filed-the final license application was submitted to FERC in February 2004r-
applicants could use either traditional or alternative licensing processes. During
development of the license application for the Klamath Project, FERC developed
an additional licensing process called an integrated licensing process, which
Hemstreet, Di - 8
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
l0
l1
t2
l3
t4
l5
t6
t7
l8
t9
20
2l
22
23
became the default process for relicensing in 2005. Applicants may also enter into
a negotiated settlement at any time. The Company initiated licensing under the
traditional licensing process, which brought forward the concems of stakeholders
and ultimately led the Company to seek to resolve the Klamath Hydroelectric
Project relicensing issues through sefflement.
a. Please provide a more detailed description of the traditional FERC relicensing
process.
A. The traditional process involves three stages of consultation. In the first stage, the
applicant distributes an Initial Consultation document, which explains the project
and its operation and environmental setting to federal and state agencies, tribes,
non-governmental organizations ('NGOs"), community interest groups, and other
stakeholders. Following the consultation document, the stakeholders meet and visit
the site. Thirty days after the meeting, comments and additional study
recommendations are due to the applicant. Stage one ends when a set of resource-
by-resource study plans and stakeholder consultation documentation have been
completed and provided to FERC.
a. What takes place in the second stage of consultation?
A. In the second stage, the applicant conducts the proposed studies and prepares a draft
license application. The applicant then distributes the application to FERC and
interested agencies, tribes, and stakeholders for review and comment. At this stage,
agencies routinely request additional studies, which can be costly and time-
consuming. The applicant may refer such requests to FERC for dispute resolution
and FERC may request additional information. The applicant must provide FERC
Hemstreet, Di - 9
Rocky Mountain Power
2
J
4
5
6
7
8
9
l0
ll
t2
l3
t4
15
l6
l7
18
t9
20
2l
22
23
a.
A.
with a written summary of how the Company resolved any disagreements with
agencies and others. The second stage ends when FERC accepts a final application
for filing.
Please describe the third stage.
In the third stage, FERC solicits initial comments and preliminary terms and
conditions from resource agencies, tribes, and stakeholders, and gives notice that
the project is ready for environmental analysis under NEPA. FERC may require
additional information from the applicant to address those comments. FERC next
initiates its detailed environmental and engineering review and solicits final
comments, recommendations, terms and conditions, and mandatory prescripions.
From all this information, FERC prepares an Environmental Assessment or
Environmental lmpact Statement ("EIS"), taking into account comments,
responses, and conditions. Ultimately, FERC issues a license order describing how
the project will be operated during the next license term and what environmental
and other enhancement obligations the licensee must fulfill. Those obligations
include the mandatory terms and conditions provided by the Secretaries of
Commerce, Agriculture, and Interior. In addition, FERC appends any conditions
associated with CWA Section 401 water quality certifications that have been issued
by state agencies.
Please describe the relicensing process the Company pursued for the Klamath
Hydroelectric Project prior to entering the KHSA.
The Company filed a Notice of Intent to relicense and issued its First Stage
Consultation Document on December 15, 2000. To arrive at consensus-based
Hemstreet, Di - 10
Rocky Mountain Power
a.
A.
I
2
J
4
5
6
7
8
9
l0
1l
t2
l3
t4
15
16
t7
18
t9
20
2t
22
23
approaches to the licensing process with the various stakeholders involved, the
Company pursued a "traditional-plus" licensing strategy-in which the traditional
process was followed with a concerted effort to solicit stakeholder input and
agreement on study plans before they were submitted to FERC for review. This
"traditional-plus" approach resulted in a significant number of stakeholder
meetings to review proposed study plans, gather input, and attempt to achieve
consensus. The Company took this collaborative approach to relicensing, intending
to complete the process more rapidly with agreement among the stakeholders to
avoid a prolonged and expensive relicensing proceeding, which is common for
hydroelectric relicensing. This process followed similar approaches employed by
the Company that resulted in the successful relicensing of the Lewis River and
North Umpqua hydroelectric projects.
a. Please explain stakeholder participation in the relicensing process for the
Klamath Hydroelectric Project.
A. Public meetings for the relicensing process began in January 2001 and continued
through 2002 and 2003. The final license application was submitted to FERC in
February 2004. The license application proposed that the East Side and West Side
powerhouses be decommissioned since operating these small facilities would no
longer be economic with the installation of fish ladders and fish screens. The license
application proposed continued operation of the remaining dams. FERC issued its
first scoping document for the environmental review process in April 2004, and
scoping was completed in May 2005. FERC issued notice that the project was ready
for environmental analysis on December 28,2005.
Hemstreet, Di - 11
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
Federal agencies-the National Marine Fisheries Service ("NMFS"), U.S.
Fish and Wildlife Service, Bureau of Reclamation, and Bureau of Land
Management-issued draft terms and conditions for a new license in March 2006.
The draft terms called for full volitional fish passage at all Klamath Hydroelectric
Project developments and other license conditions to benefit environmental
resources that would reduce power generation and increase the costs of a new
license. That same month, the Company submitted applications to the States for
CWA Section 401 water quality certifications. As a result of the Energy Policy Act
of 2005, the Company had the opportunity to challenge the underlying facts behind
the draft agency terms and conditions and propose alternative licensing conditions.
The Company pursued this challenge and filed alternative license conditions with
FERC that the Company believed provided similar environmental benefits to the
draft agency terms and conditions but at less cost and loss in power production. The
Company's filing also challenged material facts relied upon by the agencies. A trial-
type hearing was conducted on these issues of material fact underlying the agency
terms and conditions in August 2006, and an administrative law judge issued a
decision in September 2006 that did not significantly alter the conditions allowed
to be imposed on the project. That same month, FERC issued a Draft Environmental
Impact Statement for the Hydropower License.
Incorporating the findings of the trial-type hearing, the agencies issued
modified terms and conditions for a new license in January 2007. FERC then
initiated ESA consultation for a new license in March 2007. The NMFS and U.S.
Fish and Wildlife Service issued final biological opinions in December 2007. To
l0
t1
t2
l3
t4
l5
t6
t7
l8
t9
20
2t
22
Hemstreet, Di - 12
Rocky Mountain Power
23
2
J
4
5
6
7
8
9
l0
ll
t2
l3
t4
l5
16
t7
l8
t9
20
2t
22
begin analysis of the project under the Califomia Environmental Quality Act
pursuant to obtaining CWA Section 401 certification, the Company signed a
memorandum of understanding with the California State Water Resources Control
Board in September 2007. FERC completed its environmental analysis of the
project and released its final EIS for relicensing in November 2007.
a. Please describe the relicensing process after the Company filed its applications
for CWA Section 401 certification.
A. After filing its applications in March 2006 for CWA Section 401 certification with
the States, the Company began implementing water quality studies and monitoring
to improve water quality conditions in the Klamath Hydroelectric Project reservoirs
and in the Klamath River downstream of the Klamath Project facilities, and to study
the effectiveness of measures that might be employed to address water quality
impairments within the Project boundary. Due to natural and anthropogenic
nutrient loading in the Klamath River, mainly due to hypereutrophic conditions in
the Upper Klamath Lake, water quality is impaired as it enters the Klamath
Hydroelectric Project, which results in impaired water quality conditions in Project
reservoirs. In June 2009, the California North Coast Regional Water Quality
Control Board issued a draft total maximum daily load ("TMDL") report for the
Klamath River, and in February 2010, the Oregon Department of Environmental
Quality released its draft TMDL for the Klamath River in Oregon. The TMDLs
prescribe nutrient, temperature, and dissolved oxygen requirements in the river that
must be attained by Klamath Project facilities. These TMDL and environmental
Hemstreet, Di - 13
Rocky Mountain Power
2
J
4
5
6
7
8
9
10
11
t2
13
t4
l5
t6
l7
18
t9
20
a.
A.
requirements have since been adopted by the States, further increasing the risks of
relicensing, as discussed below.
Please describe how settlement is used in the FERC relicensing process.
Due to the complex nature of relicensing proceedings and the many issues and
stakeholders involved in the process, many relicensing proceedings are resolved by
settlement. As mentioned before, a settlement between the parties to a relicensing
proceeding can be entered at any time while the relicensing process is ongoing.
Settlements are encouraged by FERC, and the relicensing process encourages
applicants and stakeholders to reach consensus on the issues related to project
relicensing so the parties can settle.
Please describe the initial settlement process for the Klamath Project.
For the Klamath Project, the Company initiated sefflement discussions in
October 2004 with stakeholders following submission of the license application.
The first mediated settlement meeting was conducted in January 2005. Settlement
meetings proceeded through 2005 and mid-2006 when the settlement group turned
its attention to resolving basin-wide issues among the stakeholders.l
Understanding that dam removal was the preference of most of the
stakeholders in the relicensing process-including the States and federal
agencies-the Company resumed negotiations which resulted in an Agreement in
Principle ("AIP"), released on November 13, 2008. The AIP laid out a framework
t This group of stakeholders, after months of negotiations, released the draft Klamath Basin Restoration
Agreement (*KBRA") in January 2008. Because the provisions surrounding these broader issues were
beyond the scope ofthe relicensing proceedings, the Company did not participate in these negotiations. The
KBRA was intended to resolve issues of water allocation in the Klamath Basin and provide for habitat
restoration and called for removal of the Company's main stem hydroelectric dams. Following release of the
KBRA, active settlement negotiations were resumed among the Company, the federal government, and the
states of California and Oregon.
Hemstreet, Di - 14
Rocky Mountain Power
a.
A.
I
2
J
4
5
6
7
8
9
l0
11
t2
l3
t4
l5
t6
t7
18
l9
20
2t
22
23
for resolution of the issues related to relicensing of the Klamath Project, including
the potential decommissioning and removal of the Company's four main stem dams
on the Klamath River-J.C. Boyle, Copco No. l, Copco No. 2, and Iron Gate. As
a result of discussions with the NMFS and the U.S. Fish and Wildlife Service, the
Company also developed an Interim Conservation Plan to avoid and minimize
potential take of ESA-listed aquatic species during the period of interim operations
prior to potential dam removal or the re-establishment of volitional fish passage
pursuant to project relicensing, and to provide other habitat benefits for these
species.
Following the release of the AIP, the Company continued negotiations with
the parties to the AIP-the federal government and the States-as well as an
expanded group of stakeholders, agencies, and other interested parties to complete
a final settlement agreement. On February 18, 2010, the KHSA was executed by
over 30 parties, including the Company, the Secretary of the Interior, governors
from the states of Oregon and California, Native American Tribes, and parties
representing counties, irrigation districts, anglers, environmentalists, and other
organizations.
THE KHSA
KHSA Details
a.Please provide a more detailed description of the KHSA.
The KHSA provides for the transfer of the four dams comprising the Lower
Klamath Project to a dam removal entity ("DRE") that would remove the facilities
no earlier than2020.Initially, this transfer was contingent on several conditions,
A.
Hemstreet, Di - 15
Rocky Mountain Power
I
2
J
4
5
6
7
8
eQ.
l0
11 A.
t2
l3
t4
l5
t6
t7
18
t9
20
2t
22
including Congressional approval and authorization of the KHSA and KBRA and
a determination by the Secretary of the Interior confirming that dam removal is in
the public interest. The KHSA also conditioned removal upon the Congressional
approval of federal legislation that would authorize implementation of the KHSA,
provide liability protection for the Company and its customers, and remove the
Lower Klamath Project dams from FERC jurisdiction when preparations for their
removal were completed and dam removal was ready to commence. The KHSA, as
amended, is included as Exhibit No. 2.
Please provide an overview of the Company's approach to the negotiations
that led to the execution of the KHSA.
Relicensing for the Klamath Dam project presented a complex and challenging
process that touched on longstanding and contentious issues in the Klamath Basin
related to natural resource management, fisheries management, the allocation of
limited water supply to competing demands, and the historic commitments made
by the federal government and the States to various stakeholders, including
agricultural and Tribal communities. Throughout the initial relicensing process
negotiations, the federal government and the States expressed a strong policy
preference that the Company's dams on the Klamath River be removed to further
their goals of addressing competing interests in Klamath Basin resources. It was
with these goals in mind that the federal govemment, States, and other stakeholders
negotiated the KBRA, which was initially released in 2008 and called for removal
of the Company's mainstem hydroelectric dams. [n response, the Company
Hemstreet, Di - 16
Rocky Mountain Power
2
J
4
5
6
7
8
9
outlined four core principles that guided its negotiation strategy related to a path
that could lead to dam removal:
1. Protect utility customers from uncertain costs of dam removal;
2. Transfer dams to a third party for removal;
3. Protect utility customers from liabilities of dam removal; and
4. Ensure that utility customers continue to benefit from the low-cost power
of the dams until the dams are removed.
These principles formed the basis of what the Company negotiated into the AIP in
late 2008.
Does the KHSA also deliver the Company's four core principles?
Yes. The terms of the KHSA deliver each of these elements for the benefit of the
Company's customers. As such, the KHSA provided a more certain and less risky
path forward to address the relicensing proceeding for the Company and its
customers.
Were there any other key considerations for the Company as it negotiated the
terms of the KHSA?
Yes. The Company negotiated the terms of the KHSA to result in a fair and
balanced outcome for customers and other stakeholders. Given the expired
operating license and pending relicensing, continuing the status quo for the
Klamath Hydroelectric Project was not an option. As such, the costs to customers
under the KHSA were compared against a baseline relicensing scenario throughout
the negotiations. This analysis, which I discuss in more detail below, ensured that
customers would be expected to be no worse off under the KHSA as compared to
t0 a.
A.ll
t2
t3
t4
15 a.
t6
t7 A.
r8
t9
20
2t
22
Hemstreet, Di - 17
Rocky Mountain Power
23
2
J
4
5
6
7
8
9
l0
ll
t2
t3
t4
15
t6
t7
l8
t9
20
2l
22
23
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.
a. How is the KSIIA funded?
A. The KHSA provides $450 million to cover the costs of dam removal. The
Company's Oregon and California customers have contributed $200 million, and
California bond funding that has been secured for the project will cover the
remaining $250 million. Consistent with the principles outlined above, the KHSA
caps the Company's financial contribution for dam removal at $200 million, the
amount collected from Oregon and California customers.
Idaho customers have not contributed to the dam removal fund, consistent
with the framework in the KHSA. Most, if not all, of the expected dam removal
costs will be covered by the $450 million contributed by Oregon and California, as
I discuss in more detail below.
a. Has the entire $450 million for dam removal been secured at this time?
A. Yes. Califomia approved a bond measure in 2014 that provides funds for dam
removal pursuant to the KHSA. The OPUC and the CPUC also approved the
recovery of the $200 million in dam removal costs as surcharges to customers in
those states in 2010 and 201l, respectively. For more than a decade, customer
contributions have accrued in four trust accounts that contain the dam removal
surcharges, with the distribution of these funds overseen by the OPUC and CPUC.
The customer surcharges have been fully collected, with contributions from Oregon
customers ceasing in November 2019 and California customers ceasing in
Hemstreet, Di - 18
Rocky Mountain Power
I November 2020. These funds, with accrued interest, have fulfilled the Company's
2 obligation to provide $200 million in funding towards dam removal.
3 Economic Analysis Supporting KHSA
4 a. Please describe the Company's general approach to the economic analysis
5 supporting its decision to enter into the KHSA.
6 A. Prior to entering the KHSA, the Company compared the cost and beneflrts of the
7 KHSA with the costs and benefits of a conservative relicensing scenario. The costs
8 of relicensing are highly uncertain. As such, the Company developed a relicensing
9 case against which the economics of the KHSA were compared. The relicensing
l0 case relies heavily on the costs and data developed during the relicensing process
I I and reflected in the 2007 FERC EIS.
12 a. How was the analysis structured?
13 A. The analysis evaluated the Present Value Revenue Requirement ("PVRR") of the
14 stream of costs and generation benefits under the KHSA and compared it against
15 the PVRR of the stream of costs and generation benefits under the relicensing
16 scenario. The analysis covered a 44-year period beginning in 20lfthis equated
17 to a 40-year license beginning in20l3.
l8 a. What did the economic analysis indicate?
19 A. The Company's analysis indicated that when weighing the costs and benefits of
20 proceeding with relicensing versus implementing the KHSA, customers would
2l benefit more from the KHSA. A summary of the Company's economic analysis is
22 included in Exhibit No. 3, which indicates that the Company's conservative
23 estimate of relicensing was $3 million more expensive than entering the KHSA.
Hemstreet, Di - 19
Rocky Mountain Power
1 The Company's analysis of the KHSA costs included dam removal surcharges to
2 raise the $200 million customer contribution to dam removal costs, which were
3 collected from Oregon and California customers. Given the uncertainties in the
4 relicensing process and risks of proceeding down that path, customers are protected
5 by the KHSA from the risks and liabilities of both relicensing and dam removal that
6 would exist absent an agreement among the parties. Further, since the Company's
7 [daho customers did not contribute to the dam removal surcharges, the relative
8 benefits of the KHSA to customers in Idaho are greater than reflected in the
9 Company's analysis.
l0 Development of Relicensing Measures and Costs
1l a. What potential protection, mitigation, and enhancement ("PM&E")
12 measures would be required to relicense the Klamath Hydroelectric Project?
13 A. The Company would be required to provide fishways on all mainstem dams of the
14 Klamath River to allow volitional fish movement throughout the entire length of
15 the Klamath River. Instream flows-the amount of water required to be left in the
16 river and not diverted for power generation purposes-would also need to be
17 increased, reducing the generation benefits of the project. Stringent ramp rates-
18 the rate at which river levels are allowed to fluctuate due to operation of the
19 project-would also be imposed, limiting the operational flexibility of the project.
20 Additionally, CWA Section 401 water quality certifications must first be completed
2l by the States. The conditions of the CWA Section 401 certification would then be
22 incorporated into the new FERC license.
23 These certifications may be more difficult to obtain after the adoption of
Hemstreet, Di -20
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
t0
l1
t2
l3
t4
t5
l6
t7
18
t9
20
2l
22
23
more stringent water quality standards by both Oregon and California. As discussed
above, California and Oregon have adopted stringent TMDL and water quality
standards since the Company analyzed the cost of relicensing as it negotiated the
KHSA. These TMDL requirements would impose additional operational
limitations and water quality restrictions on the operation of the Klamath
Hydroelectric Project. Given the myriad new environmental requirements that
would be applied to a relicensed project, relicensing could be even more costly and
pose greater risk than anticipated in the Company's economic analysis.
a. Who ultimately decides what the required PM&E measures are?
A. No single party determines the final PM&E measures. FERC issues an EIS that
includes PM&E measures and FERC staff includes measures that may differ from
those proposed by the applicant, but before a new license is issued, FERC must also
incorporate the mandatory agency prescriptions and the conditions included by
fisheries agencies (NIvtFS and the U.S. Fish and Wildlife Service) as fishway
prescriptions under Section l8 of the Federal Power Act, other mandatory license
conditions issued by federal agencies that manage lands that are impacted by the
project under Section 4(e) of the Federal Power Act, as well as state CWA Section
401 water quality certification requirements. [n addition, measures necessary for
compliance under the ESA must also be included in a new license.
a. How are the costs for the likely PM&E measures determined?
A. Most of the cost estimates for likely PM&E measures are developed by the
applicant through the preparation of resource technical reports and through
responses to additional information requests from FERC during the license review
Hemstreet, Di - 2l
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
l0
11
12
13
t4
15
t6
t7
18
t9
process. These cost estimates are often based on cost information from similar
projects and the preparation of specific cost estimates for mitigation measures.
These measures are then refined over time as additional measures are identified and
defined. Other cost estimates may be developed by intervenors as they recommend
alternative PM&E measures or different project alternatives, as well as agencies
that are recommending PM&E measures. Some costs are developed by FERC staff
as they build their own set of recommended PM&E measures during preparation of
project altematives that are evaluated through the NEPA process.
a. When and how are the required PM&E measures and costs finalized?
A. The costs of relicensing are not finalized until all required PM&E measures have
been implemented. Even though the new license prescribes the required PM&E
measures, it cannot cap the costs of those measures. As PM&E measures are
designed and implemented, the costs of the measures often change in response to
site-specific conditions, and continued consultation with agencies charged with
overseeing and permitting the PM&E measures, as well as evolution of agency
design standards applicable to capital-intensive measures such as fishways.
Furthermore, agencies typically reserve their authority to reopen a license and
require new or adjusted PM&E measures if additional improvements are deemed
necessary.
Hemstreet, Di -22
Rocky Mountain Power
I Overview of Relicensing and Settlement Costs
2 a. Please provide an overview of the Company's estimated costs to relicense the
3 Klamath Project.
4 A. The Company's baseline estimated costs to relicense the Klamath Project include
5 over $400 million in capital expenditures and $60 million in operations and
6 maintenance ("O&M") costs over a 4}-year license term. Of these capital costs, the
7 majority are related to the implementation of aquatic resource PM&E measures.
8 These costs are related to providing volitional upstream and downstream fish
9 passage at project developments and adjustments to ramp rates, which are required
10 by the mandatory agency terms and conditions that FERC is required to include in
l l a new license. Additional funding would be required for terrestrial resource,
12 recreational resource, land use, and cultural resource PM&E measures. The
13 remaining capital costs are for water quality improvements to address temperature
14 and dissolved oxygen effects of the project's reservoirs and to address water quality
15 concerns related to algae.
16 The PM&E measures contained in the Company's baseline relicensing
17 scenario generally include those measures specified in the "Staff alternative with
18 Mandatory Conditions" alternative in the FERC final EIS. The costs of measures
19 included in the "Staff Alternative with Mandatory Conditions" were escalated to
20 2010 dollars since the costs contained in the EIS were in 2006 dollars. Because the
2l CWA Section 401 water quality certification process was not completed, the water
22 quality measures necessary to obtain a new license remain highly uncertain. Thus,
23 the Company's relicensing scenario includes measures that were evaluated during
Hemstreet, Di - 23
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
the FERC process to address the water quality effects of the project, as an estimate
of what might be required. The Company's analysis has conservatively estimated
these costs given the more stringent water requirements that have come into effect
in recent years.
In addition to the capital and O&M expenditures to implement the required
PM&E measures, the relicensing scenario also reflects a 20 percent reduction in the
energy that would be produced from the Klamath Hydroelectric Project. This
reduction is due, primarily, to the requirement to provide more water to bypassed
reaches of the Klamath River, which makes less water available for generation. This
most significantly impacts generation at the J.C. Boyle development, where
compliance with agency terms and conditions on flows would reduce generation by
more than 40 percent. J.C. Boyle is by far the most productive generation facility
in the Klamath Project, with a nameplate capacity of 98 megawatts.
What information sources were used to derive these costs?
The majority of the costs included in the Company's analysis are in the FERC
record and contained or referenced in Appendix A of the EIS. Some costs were
developed from Company internal estimates and generation impact models. Given
the uncertainty related to the costs to implement measures required to obtain CWA
Section 401 water quality certifications from the States, water quality costs include
measures explored during the relicensing proceeding through additional
information requests submitted to FERC that described measures and estimated
costs to address project-related water quality effects.
l0
l1
t2
13
t4 a.
15A
L6
t7
18
t9
20
2t
Hemstreet, Di -24
Rocky Mountain Power
22
a.
A.
2
^J
4
5
6
7
8
9
10
ll
t2
13
t4
l5
t6
t7
18
t9
20
2t
.",LL
23
a.
A.
Please provide an overview of the Company's assumed costs of implementing
the KIISA.
The Company's assessment of the costs of settlement included approximately
$9 million in capital costs and approximately $70 million in costs that would be
characterized as O&M costs. The majority of the capital costs reflected the costs of
interim water quality improvements and hatchery improvements. lncreased funding
for hatchery programs and ongoing hatchery production following dam removal
represents approximately half of the O&M costs. Other funding requirements
include restoration and study funding, lands and cultural resources funding, aquatic
habitat enhancement, water quality monitoring and improvement costs.
Implementation and management costs are also reflected in the O&M costs.
Additionally, costs under the KHSA scenario included the costs of
renewable replacement power, based on the targeted decommission date of
December 3l,2020.Implementation costs also include the decommissioning of the
East Side and West Side development at a cost of approximately $3 million, and
the dam removal customer surcharge designed to raise $200 million for dam
removal, which has been recovered from the Company's Oregon and California
customers.
How were these costs derived?
The majority of the costs included in the Company's assessment of settlement costs
are derived from Appendices C and D of the KHSA. These appendices list the
interim measures that the Company must implement prior to dam removal. Many
of the interim measures consist of capped funding obligations for specific resource
Hemstreet, Di - 25
Rocky Mountain Power
I areas such as hatcheries, aquatic habitat enhancement, water quality monitoring,
2 water quality studies and improvements, and land management activities. Other
3 costs for specific interim measures are estimates of what might be necessary to
4 fulfill the obligation spelled out in the interim measure based on the costs to develop
5 certain infrastructure or implement specific projects. As with the relicensing case,
6 some costs are developed from Company intemal estimates and generation impact
7 models.
8 Q. What did the analysis assume with respect to the costs of replacement power?
9 A. In both scenarios, the Company assumed that lost generation would be replaced
l0 with renewable, non-carbon emitting resources. As discussed above, there is also
1l lost generation under the baseline relicensing scenario due to operating restrictions
12 that were included in the EIS.
13 Risks Related to Relicensing, Settlement and Removal Costs
L4 a. What cost risks does relicensing present for customers?
15 A. The greatest risk to relicensing for customers is rising costs. The PM&E measures
16 included in the Company's assessment of relicensing costs are based on the best
17 estimates available as developed during the relicensing proceeding several years
18 ago. As such, there is always a risk that costs for PM&E measures will escalate as
19 measures are fully designed and constructed. This represents a risk to customers
20 since a new license would prescribe the construction of facilities to mitigate
2l project effects and establish volitional fish passage regardless of the ultimate cost
22 of those measures. Consultation with agencies, as required by a new license, can
Hemstreet, Di -26
Rocky Mountain Power
a.
A.
I
2
J
4
5
6
7
8
9
10
ll
t2
13
t4
15
t6
t7
18
t9
20
2l
22
23
also increase the scope and cost of PM&E measures as design standards and
agency criteria change.
The cost of additional PM&E measures is another risk relicensing presents.
Agencies have reserved authority to require additional mandatory PM&E
measures to address changed environmental conditions or the potential
ineffectiveness of required PM&E measures to attain the desired benefits. Thus,
additional PM&E measures could be required during the term of a new license that
would result in additional costs to customers above what is reflected in known
relicensing costs at this time.
There are also other process-related risks that relicensing presents for
customers. The States' strong support of dam removal has increased the
uncertainty of relicensing, considering each state's role in the relicensing process.
For example, if either Oregon or California denied a CWA Section 401 water
quality certification, FERC would be unable to issue a new license. If this scenario
took place, FERC could require the Company to decommission and remove the
project facilities at the Company's expense without any support from local, state,
or federal stakeholders.
Do you believe that the costs assumed in the baseline relicensing scenario are
conservative?
Yes. Absent a settlement among parties, it is clear that the Company would
continue to face significant opposition to relicensing. As discussed above, there
are also significant risks related to the Company's ability to secure state CWA
Section 401 water quality permits.
Hemstreet, Di - 27
Rocky Mountain Power
2
J
4
5
6
7
8
9
10
u
t2
l3
t4
15
t6
t7
18
t9
20
2t
22
a. How do these risks compare to the risks under the Company's settlement
scenario?
A. Continuation down a path of relicensing presents far greater risks to customers
than settlement under the KHSA. Under the KHSA, cost obligations are well-
defined and largely capped. For the measures that do not have a cost cap, the
relative cost risk is much less than under relicensing given the extensive scope and
costs associated with measures required under relicensing. Additionally,
transferring the dams prior to removal, along with other key protection measures
outlined in the KHSA, further minimize cost risk.
a. What information has informed the Company's views of the costs and risks of
relicensing and Lower Klamath Project removal?
A. The Company's views of the costs and risks of relicensing and Lower Klamath
Project removal has been informed by many sources, nearly all of which are
contained within the FERC record for the relicensing proceeding, including:
o The Company's license application;
o Final technical reports;
o Final technical studies prepared by numerous parties;
o The Company's responses to additional information requests;
o Comments on the license application by stakeholders and regulatory agencies;
o The agencies' mandatory terms and conditions;
o Biological opinions issued for a relicensed project;
o CWA Section 401 water quality certification applications and studies;
Hemstreet, Di - 28
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
l0
1l
t2
r3
t4
l5
16
t7
l8
t9
20
o The water quality agencies' views of project impacts as evidenced by written
statements, technical reports, and public testimony;
o The TMDL regulatory process material; and
o Historical reports.
In addition, several third parties have undertaken studies related to the costs
and risks associated with dam removal that informed the Company's negotiation of
the KHSA and evaluation of the risks of dam removal absent the protections of the
KHSA. Such studies include a comprehensive assessment of the potential risks and
liabilities related to removal of the Klamath dams (Camp Dresser and McKee Inc.,
2008) commissioned by and various studies on dam removal costs, sequencing,
and environmental impacts commissioned by the California Coastal Conservancy.
a. How did the Company use the analysis to inform its negotiation strategy?
A. As mentioned above, the Company was willing to agree to a set of financial
commitments and interim operating conditions for the Klamath dams under the
KHSA that resulted in the KHSA providing more benefits to customers, and
significantly reducing risks as compared to the relicensing scenario. However, it
was also important to the durability of the KHSA that the other sefflement parties
viewed the overall result as fair and balanced. If the PVRR of the KHSA were
significantly below the baseline relicensing case, this durability would have been
threatened.
Hemstreet, Di - 29
Rocky Mountain Power
2
J
4
5
6
7
8
9
l0
l1
t2
l3
t4
l5
t6
t7
l8
t9
20
2t
22
a. Does the KHSA result in a fair and balanced outcome to the Company's
customers?
A. Yes. Based on the results of this conservative analysis, the KHSA results in a PVRR
that is below the cost of relicensing. This is shown in a summary of the Company's
economic analysis included in Exhibit No. 3. More importantly, customers are
protected from the risks and liabilities that exist absent an agreement among the
parties. These risks include: (1) potentially higher costs under final terms and
conditions for relicensing; (2) difficulties in securing state and federal approvals
for relicensing; (3) continued litigation related to ESA requirements, water quality
issues and water quality certification requirements; and (4) early shut-down and
removal of the project. In the end, the terms of the KHSA allow the Company to
respond to the policy preferences favoring dam removal while protecting all of the
Company's customers from the long-term costs and risks of removal.
THE KHSA AMENDMENTS
a. Was implementation of the KHSA delayed after 2010?
A. Yes. Implementation of the KHSA was delayed because Congress did not pass the
necessary legislation within the requisite time period, which triggered a potential
termination of the KHSA and ultimately resulted in termination of the KBRA.
Consequently, in January 2016, the KHSA's dispute resolution procedures were
triggered. Following a series of dispute resolution meetings, the States, the
Department of the Interior ("Interior"), the NMFS, and the Company proposed
limited amendments to the KHSA. The amendments to the KHSA were executed
Hemstreet, Di - 30
Rocky Mountain Power
I
2
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.
a. Briefly describe the effect of the KHSA amendments.
A. The KHSA, as amended, retained the core customer protections of the original
agreement while charting a new course for dam removal. Rather than relying on
federal legislation, the amendments established a process by which the Company's
FERC operating license for the Lower Klamath Project would be transferred to a
newly formed DRE (the Renewal Corporation) under FERC's traditional license
transfer and surrender procedures.
a. What steps has the Company taken to implement the KHSA since it was
amended?
A. Since the KHSA was amended, the Company has been diligently working with all
other parties for over four years to implement the settlement. In March 2016, the
Renewal Corporation was incorporated for the exclusive purpose of serving as the
DRE, accepting the transfer of the license for the Lower Klamath Project,
surrendering the license for the project, and conducting the removal of the Lower
Klamath Project dams.2 Once removal is complete, the Renewal Corporation will
transfer the land to the States, so the property can be used to benefit the public in
other ways such as habitat conservation and recreation.
a. What is the legal status of the Renewal Corporation?
2 Certified copies of the Renewal Corporation's articles of incorporation, bylaws, and certificate of good
standing are submitted with this application as Exhibit No. 4. Section $ 1.2 of the Renewal Corporation's
Bylaws describes the organization's purpose.
Hemstreet, Di - 31
Rocky Mountain Power
J
4
5
6
7
8
9
l0
l3
1l
t2
t4
l5
16
t7
18
19
20
lA.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, who have considerable technical, legal,
and political experience in water issues, environmental planning, and the Klamath
Basin.
Consistent with the KIISA, has the Company filed a license transfer
application with FERC?
Yes. On September 23, 2016, and later supplemented, the Company and the
Renewal Corporation filed a license amendment and transfer application with
FERC to amend the Klamath Hydroelectric Project license to administratively
remove the Lower Klamath Project dams from the license and place those
developments into a new license separate from the rest of the Klamath
Hydroelectric Project that would become the Lower Klamath Project. The
application also requested the transfer of this newly created license for the Lower
Klamath Project from the Company to the Renewal Corporation. In a concurrent
filing with FERC, the Renewal Corporation applied to surrender the Lower
Klamath Project license and remove the four dams.
On March 15,2018, FERC approved the proposed license amendment to
separate the J.C. Boyle, Copco No. l, Copco No. 2, and Iron Gate developments
from the existing FERC license for Project No. 2082 and transfer them into a new
license created for the Lower Klamath Project as Project No. 14803. At the same
time, FERC declined to rule on the pending request to transfer the license to the
Renewal Corporation, and instead solicited additional financial, insurance, and risk
Hemstreet, Di - 32
Rocky Mountain Power
a.
A.
2
^J
4
5
6
7
I
9
10
l1
t2
13
t4
15
l6
t7
l8
t9
20
2l
22
23
2
J
4
5
6
7
8
9
l0
11
t2
13
t4
15
l6
t7
l8
19
20
2t
management information to inform its assessment of the Renewal Corporation's
capacity to become the sole FERC licensee for the Lower Klamath Project for the
purpose of removing the four dams.
a. What are the Company's plans for the remainder of the facilities that are not
included in the license for the Lower Klamath Project?
A. Consistent with the Company's application for a new license in2004,the Company
plans to decommission the small East Side and West Side powerhouses. Pursuant
to the KHSA, the Company intends to transfer the Keno development, which is a
non-generating dam that maintains water levels in Keno Reservoir for the benefit
of Klamath Basin irrigators and the Interior's Klamath Irrigation Project to the U.S.
Bureau of Reclamation. The Company will pursue relicensing of the small Fall
Creek hydroelectric facility and will evaluate whether the facility should be
transferred to another operator in the future when the Lower Klamath Project dams
are removed.
FERC'S JULY 2O2O ORDER
a. After FERC issued its 2018 order, did the Company provide FERC with the
requisite information to allow FERC to approve the license transfer?
A. Yes. The Company, in conjunction with the Renewal Corporation and the States,
developed 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.
Hemstreet, Di - 33
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
a.
A.
Did FERC approve the license transfer as requested by the Company and the
Renewal Corporation?
Not entirely. On July 16, 2020, FERC approved a partial transfer of the Lower
Klamath Project license from the Company to the Renewal Corporation("July 2020
Order"). While FERC was generally satisfied with the Renewal Corporation's
ability to facilitate the dam removal, FERC determined that the public interest was
best served by approving a partial transfer of the license and requiring the Company
to remain a co-licensee during the license surrender and dam removal process. By
remaining a co-licensee, FERC noted that the Company can provide legal and
technical expertise and ensure that there will be sufficient funding to carry out the
dam removal.
FERC acknowledged that its conclusion to authorize apartial transfer of the
Lower Klamath Project License constituted a significant change from what the
parties agreed to in the KHSA because the KHSA required a full transfer of the
license to the Renewal Corporation. To rectif, this discrepancy, FERC recognized
that the parties to the KHSA could amend the agreement further to provide further
assurances that resources to cover the costs of decommissioning would be available
to the Renewal Corporation in the unlikely event that identified funding was
insufficient.
Hemstreet, Di - 34
Rocky Mountain Power
l0
11
t2
t3
t4
l5
t6
t7
18
t9
I
2
J
4
5
6
7
8
9
10
11
t2
13
t4
l5
t6
t7
18
t9
20
2l
22
23
THE MEMORANDUM OF AGREEMENT
a. Since the FERC July 2020 C)rder, has the Company and the principal parties
to the KIISA made adjustments to ensure the Company can fully transfer its
license for the Lower Klamath Project to the Renewal Corporation?
A. Yes. The Company engaged with several groups of stakeholders and implementing
entities to 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 MOA to resolve
the discrepancies between the July 2020 Order and the KHSA. Under the MOA,
the States agreed to become co-licensees with the Renewal Corporation for the
Lower Klamath Project and allow the Company to fully transfer the license for the
Lower Klamath Project dams, providing FERC the assurances it needs to allow the
Company to do so. The MOA is included as Exhibit No. 5.
a. Briefly describe the requirements of the MOA.
A. The MOA provides that the Company and the Renewal Corporation file an ALSA
with FERC. The ALSA, which was filed concurrently with the execution of the
MOA on November 17,2020, updates the Renewal Corporation's 2016 surrender
application with a more detailed design for achieving a free-flowing river,
volitional fish passage, site remediation, and restoration. The ALSA also asks
FERC to commence a technical review of the dam removal proposal, including
evaluations under NEPA, the ESA, and other federal resource laws.
Pursuant to the MOA, a new license transfer application was filed on
January 13,2021. The license transfer application notified FERC thatthe Company
Hemstreet, Di - 35
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
10
ll
t2
13
t4
l5
t6
t7
l8
t9
20
2l
22
23
and the Renewal Corporation are not accepting the July 2020 Order that included
the Company as a co-licensee but are instead building upon the original license
transfer application by seeking an Order to approve a transfer of the license for the
Lower Klamath Project to the Renewal Corporation and the States as co-licensees.
Removing the Company as a co-licensee and adding the States, together
with the MOA commitments, addresses the earlier public interest concerns that
caused FERC to approve only a partial license transfer in its July 2020 Order. If the
new license transfer application is approved by FERC, the MOA requires the States
and the Renewal Corporation to accept the license transfer order making all three
parties co-licensees for the Lower Klamath Project and removing the Company
from the license.
Under the MOA and the KHSA, and consistent with the concept that the
FERC 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 and state regulatory approvals are secured. In particular, the
Company must obtain state regulatory approval from the Commission, and the
regulatory commissions in Oregon, California, and Idaho, for the disposition of the
Lower Klamath Project before the transfer can occur.
a. Has the Company executed a separate agreement that governs the transfer of
the property?
A. Yes. The Company and the Renewal Corporation have negotiated the Transfer
Agreement to effectuate the MOA's property transfer provision. The Transfer
Agreement is attached as Exhibit No. 6.
Hemstreet, Di - 36
Rocky Mountain Power
a.
A.
aL
J
4
5
6
7
8
9
10
ll
t2
13
t4
l5
l6
t7
18
t9
20
a.
A.
Who will operate the Lower Klamath Project during the pendency of the
required regulatory approvals?
To ensure a smooth transition, the MOA requires the Company to remain the
project operator during FERC's review of the license surrender application. This
provision will allow the Renewal Corporation to depend upon the Company's
resources and experience as a project operator throughout the license surrender
proceeding, ensuring that the Company can assist the Renewal Corporation before
the license transfer and dam removal, and maintaining the Company's negotiated
principle that customers should continue to benefit from the project dams until they
are removed.
How does the MOA address the possibility that dam removal will exceed the
$450 million cost cap in the KHSA?
The MOA provides additional financial commitments to address the unlikely event
that dam removal costs will exceed the KHSA cost cap. Under the MOA, the
Company 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 that the
funds available to the Renewal Corporation needs to be augmented to ensure
completion of dam removal. Should cost ovemrns deplete the fixed contingency
fund, then such unlikely costs shall be shared equally by the Company and the
States.
Hemstreet, Di - 37
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
10
11
t2
13
t4
l5
t6
t7
l8
19
20
a. Has there been an independent review of the Renewal Corporation's expected
costs to remove the dams?
A. Yes. An independent Board of Consultants ("BOC") comprised of experts in
relevant disciplines, convened at FERC's direction, has reviewed the Renewal
Corporation's budget, contracts, insurance, and risk mitigation program. The BOC
found that the Renewal Corporation's cost estimate for dam removal was
"consistent with industry standards" and 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 Plan."3 In the July 2020 Order, FERC
found that the BOC had "thoroughly examined ... concerns [about the Renewal
Corporation's capacity] and found the Renewal Corporation's financing, insurance,
and contingencies to be appropriate for what it proposes to do."4 FERC concluded
that it was "generally satisfied that the Renewal Corporation has the capacity to
carry out its proposed decommissioning,"s including financial capacity, based on
the funds available for dam removal under the KHSA.
PUBLIC INTEREST STAI\DARI)
a. Why is the transfer of the Lower Klamath Project in the public interest?
A. The KHSA provides a framework for removal of the Lower Klamath Project, while
providing robust customer protections. Relicensing the Lower Klamath Project or
3 Letter Report: Board of Consultants Mtg. No. 1 (November 28, 2018) andits Letter Report: Supplement lo
Board of Consultants Mtg. No. 1 (July 29,2019).
a Order Approving Partial Transfer of License, Lifting Stays of Order Amending License, and Denying
Motionfor Clarijication and Motion to Dismiss, 172 FERC fl 61,062, at fl 71 (July 16,2020) [hereinafter July
2020 Orderl.
s Id.
Hemstreet, Di - 38
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
r0
1l
t2 a.
13
t4 A.
l5
t6
t7
l8
t9
20
2t
22
23
surrendering the license and removing the dams absent the protections of the KHSA
would have exposed the Company and customers to substantial costs, risks, and
liabilities.
As discussed above, the Company conducted extensive economic analysis
showing that removal of the Lower Klamath Project dams under the KHSA is the
least-cost, least-risk option for Idaho customers compared to the uncapped and
unknown costs of relicensing and related litigation-particularly given that Idaho
customers have not contributed to the $200 million dam removal surcharge
accounts funded by customers in Oregon and California. The Company estimated
that relicensing would cost at least $460 million and present significant risk, as
compared to the KHSA, which defined and limited the Company's costs.
Have the KHSA amendments and MOA fundamentally changed the dam
removal agreement executed in 2010?
No. While the MOA does provisionally commit limited, additional funds to the dam
removal process, the parties to the MOA have stated that these funds will likely be
unnecessary. Even with these additional, contingent financial commitments,
relicensing remains a much more costly and risky altemative than dam removal
under the KHSA. Moreover, this responsibility for additional funding is shared by
both the States and the Company. The MOA's cost-sharing mechanisms 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.
Significantly, the Renewal Corporation's current budget shows that dam
removal can be completed within the funds available under the KHSA.
Hemstreet, Di - 39
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
l0
1l
t2
l3
l4
15
t6
t7
18
t9
Accordingly, the contingency funding provided for in the MOA will likely not be
needed, particularly given identified contingency funding of over $50 million
included within the Renewal Corporation's current project budget. 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.6
In addition, 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 60 percent design
specifications 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 the
project.
Furthermore, the Company has already collected all the surcharges
associated with dam removal from Oregon and California customers and has
depreciated the book value of the Lower Klamath Project in preparation for
removal.T The Company has reflected the removal and replacement of the Lower
Klamath Project in its integrated resource plans for many years, and the Company's
growing portfolio of renewable resources helps mitigate the impact of removing
zero-fuel cost resources at this time.
6 Letter Report: Board of Consultants Mtg. No. 1 (November 28,2018) wrdits Letter Report: Supplement to
Board of Consultants Mtg. No. I (July 29,2019); July 2020 Order atlTl'
7 The net book value of the Lower Klamath Project for Idaho customers, as of the end of 2020 is $1.6 million.
The Company is not requesting any ratemaking treatment related to this net book value at this time.
Hemstreet, Di - 40
Rocky Mountain Power
lQ.
2
3A.
4
5
6
7
8
9
10
ll
t2
l3
t4
15
t6
t7
18 a.
19 A.
20
2t
22
23
Have the risks associated with relicensing increased since the KHSA was
originally executed in 2010?
Yes. 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. As
discussed above, the States' increasingly strict water quality standards pose a threat
to relicensing and continued pursuit of a project license is likely to result in
protracted litigation and continued risk to customers. It would be costly to comply
with these water quality standards, exposing customers to unknown costs and risks.
Additionally, deteriorating anadromous fish returns in the Klamath Basin, similar
to those experienced elsewhere on the west coast, continue to exacerbate nafural
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 ability to secure a long-term license for the Lower Klamath
Project and render it prudent to remove customers from ongoing exposure to the
costs and risks related to the natural resource controversies and challenges ofthe
Klamath Basin.
What are your recommendations?
For the reasons outlined in my testimony I recommend that the Commission
approve the transfer of Lower Klamath Project properties along with the
responsibility of the dam removal to the Renewal Corporation. Approval of this
application will allow the Transfer Agreement to take effect according to its terms
upon FERC's approval of the Amended License Surrender Application and the
Hemstreet, Di - 41
Rocky Mountain Power
I
2
3
4
a.
A.
lioense transfer application reducing the risk of further costs to the Company and
its Idaho customers.
Does this conclude your direct testimony?
Yes.
Hemstreet, Di - 42
Rocky Mountain Power