Plan for Hydropower Auction Sets Off a Flood of Concerns
With the turn of a lever, a behemoth owned by Pacific Gas & Electric Co. creates 10% of the power generated in California.
It alters the water level in lakes and the temperature in rivers in a 500-mile swath stretching from Redding to Bakersfield. It helps power San Francisco, and controls the flow of water to the farm empires of the Central Valley and to the megalopolis of Southern California.
It is the largest privately owned hydroelectric power network in North America--a vast collection of 174 dams, 68 powerhouses, 99 reservoirs and 382 canals and pipes. And it may soon be for sale to the highest bidder.
As a consequence of California’s foray into energy deregulation, PG&E; is asking California’s Public Utilities Commission for approval to auction off its crown jewel in five huge pieces covering each of the major watersheds it encompasses. Estimated value: $3 billion to $5 billion.
Hearings started Monday. And a broad spectrum of interests, from commercial fishing groups to environmentalists, rural counties to big-city waterworks, are voicing concern that the sale may not be for the public good.
Many differ on how the system should be sold, if at all, and most have axes to grind. But all agree that whoever wields the unrivaled constellation of flumes and turbines will influence everything from boating and recreation to the price of water and power--with little or no state oversight.
Perhaps the greatest fear is that the new owner could crassly manipulate this most flexible of power sources, revving up the turbines in a thirst for more profits. Or that the system could fall into the hands of an already powerful energy company, which could then become strong enough to monopolize the pricing of electricity in California.
PG&E; representatives consider those fears unfounded, noting that the network would still be covered by federal regulations.
“The hydro asset is so valuable because it is exploiting a natural resource: the run of the rivers,” said Nettie Hoge of the Utility Reform Network, a San Francisco-based consumer group. “Someone who sees the ancillary [energy] market as a cash cow could rush water or withhold it at times when it could be very beneficial to themselves, but not too good” for the environment.
Lawmaker Seeks State Takeover
Pledging to bring order to what could be a chaotic sell-off, one California lawmaker is proposing that the state acquire the network for six years to make improvements to dams, flumes and reservoirs that average 75 years old and, in some cases, date to the days of the Gold Rush.
The state would then place conditions on the properties to control their use, find ways to release more water into diminished streams and rivers--and even decommission smaller dams that block the migration of endangered species of trout and salmon.
That prospect excites fishermen and naturalists, who see an opportunity to repair a century’s worth of damage wrought by taming California’s waterways to harness their power. Environmentalists estimate that California’s Coho salmon and steelhead trout populations are 1% of what they were 100 years ago, in large part because of dams and other man-made diversions.
“With the number of salmon at a crisis point, there are a couple of things we can do to bring them back,” said Elyssa Rosen of the Sierra Club’s Wild Salmon Forever campaign. “One is to change how we’re logging in Northern California, and another very substantial one is to change the way we regulate hydropower in California.”
But the bill by Assemblyman Fred Keeley (D-Boulder Creek) faces long odds. Not only would it essentially devalue any PG&E; auction by giving California the right to trump all offers, but it would make the state a powerful player in the electricity market. That, critics note, would contradict the free-market competition that was supposed to follow deregulation.
“The market is a better answer. We think there are ways of addressing the environmental concerns through the auction,” said Mona Petrochko of Enron Corp., a massive Texas energy concern that is selling electricity in California and is aggressively looking to build or buy power sources in the state.
Just as significantly, it is strongly opposed by PG&E.; The utility has proved time and again to be a formidable force in the Capitol, employing fleets of lobbyists and giving out mountains of campaign cash whenever under attack. In 1998, for example, it spent $18 million on state politics, joining other utilities to defeat an initiative pushed by consumer advocates to undo key parts of the 1996 deregulation law. PG&E; gave Gov. Gray Davis $85,000 last year.
PG&E; does not always get its way, however. The Legislature rejected an eleventh-hour push by PG&E; during last year’s lawmaking session to transfer the hydro assets to an unregulated subsidiary, leading it to pursue the auction. Consequently, many critics see the auction as a sham proceeding intended to place the network in the subsidiary’s hands.
But the timing could not be worse for PG&E.; “Erin Brockovich,” a Julia Roberts movie about a legal secretary who helps bring “a huge company to its knees” in a ground-water pollution case, is showing in theaters across America. It is based on a true story, and the villain is PG&E--a; public relations nightmare that reportedly has corporate brass concerned.
Bob Glynn, the chief executive of PG&E; Co.’s parent company, PG&E; Corp., recently distributed a letter to employees. It stated that while the company “should have handled some things differently” in the case that spawned the movie--which it settled for a then-record $333 million--the film is “an entertainment vehicle” that should not be construed as fact. The hydro system was not part of the case depicted in the movie.
“This company is proud of its environmental record,” said PG&E; Co. Vice President Dan Richard. “We have been in the forefront of environmental solutions in this country.”
Many seem to agree. Indeed, much of the concern about the auction is based on the belief that PG&E; has been a relatively good steward, and another owner might not be so reasonable.
Or, rather, the other owners. As almost everyone associated with the auction acknowledges, it is unlikely that one group will emerge from the process with the entire system--unless it is the PG&E; subsidiary. Many rural counties and irrigation districts, for example, want to acquire the powerhouses in their vicinity, but nothing else.
Some Fear Radical Changes
Some worry that the resulting patchwork of owners with competing interests could radically change the way the system is operated. One might want to supply water for boating, for example, while another wants to release it to irrigate crops.
Others worry that some unprofitable but environmentally important assets may draw no interest at all, placing their future in question.
PG&E; representatives and others say those fears fail to take the realities governing hydro plants into account. Altering the way the powerhouses and dams are operated requires approval from the federal government--a lengthy process that often ends in failure.
“We didn’t wake up in the morning and say, let’s break up a 120-year-old hydro system and auction it off,” PG&E;’s Richard said. “Our company is in a competitive environment in a world that is changing. We have to stay strong for our shareholders.”
PG&E;’s decision to sell is a direct outgrowth of California’s experiment in electricity deregulation, which began in 1996.
At that time, the old utility companies that had enjoyed monopolies over huge sections of the state--Southern California Edison, San Diego Gas & Electric and PG&E--complained; that they would not be able to compete in the new order. They said their old facilities were not up to par with what competitors could build, and that they were burdened by nuclear power plants and other botched investments. And they began flexing their considerable lobbying muscle in Sacramento.
California lawmakers came up with a compromise. They allowed power companies to pass along the costs of those earlier investments--known as “stranded costs”--to consumers until 2002 in the form of a “competition transmission charge.”
But lawmakers also mandated that utilities have all their assets evaluated by 2001 to determine whether their worth exceeded the book value of the facilities, including the stranded costs. If they did, the difference would be reimbursed to consumers.
PG&E; Co., the only regulated part of PG&E; Corp., has already sold its fossil fuel and geothermal plants.
Although lawmakers in 1996 were fully aware that deregulation would result in the sale of power sources, some believe they did not quite consider the ramifications for hydroelectric power.
Keeley’s legislation, AB 1956, attempts to protect the public from negative consequences by creating a state authority that would assume temporary control of the PG&E; system. The state would protect existing water rights agreements and make environmental and water-quality improvements, such as building fish ladders for migrating salmon.
That approach has attracted some powerful supporters, including the Metropolitan Water District of Southern California, a wholesaler that supplies 17 million customers in nearly 300 communities.
“We want better water quality and we also need a steady water supply,” said Timothy Quinn, the MWD’s deputy general manager. “In an odd twist of fate, the Metropolitan Water District is an ally of the Northern California environment.”
But it has generated its share of critics, who consider Keeley’s six-year timeline wildly optimistic, and question the cost to California.
PG&E;’s Richard recalled that 23 years ago, the utility proposed releasing more water to the Sierra’s pristine Mokelumne River to help resuscitate depleted fish populations. It’s still fighting with federal authorities.
“We have absolutely no criticism of [Keeley’s] intentions,” Richard said. “But because there are so many interconnected interests, it simply does not work that way. It takes time.”
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Times staff writer Julie Tamaki contributed to this report.
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Power Network for Sale
The largest privately owned hydroelectric power network in North America--174 dams, 68 powerhouses, 99 reservoirs and 382 canals and pipes owned by the Pacific Gas & Electric Co.--may soon be sold at auction. Various groups, from water providers to environmentalists, are concerned about the consequences. And a state lawmaker wants government to acquire the network, which spans from Redding to Bakersfield, for six years to protect the public interest.
