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Aug 21, 2000 - Water Advisory
Committee (Water Contractors) meeting [BW Comment:The importance of this group is that it is composed of the water contractors for eight Sonoma County cities and Forestville, Valley of the Moon, North Marin and Marin Municipal Water Districts plus a whole group of Water Agency staff and Santa Rosa Bureau of Public Utilities staff. These people are responding to the push by industry, construction, grapegrowers, the agricultural industry, the real estate industry, the Farm Bureau, gravel mining interests, Telecom Valley. These are the people planning for the water needs of growth. This write up is very long and this section is extensive. It concerns Potter Valley, the source of the summer flow in the Russian River. Some people say Bob Beach is in charge of this project. He talks a lot about the present energy crisis, the PUC, FERC, NMFS and is very interesting. No Eel River diversion equals no water for canoe trips, swimming, fishing, water sports, part of the Recreation/Tourist Industry. The Guerneville area of the Russian River, now slated for Redevelopment is part of the Tourist Plan. The following is as unofficial word-for-word write up of the first 30+ minutes of this very important meeting.] The Water Contractors meeting was held Monday, August 21, 2000 from 9:00 AM until around noon at the Santa Rosa Laguna Wastewater Treatment Plant, 4300 Llano Road, Santa Rosa, CA. Miles Ferris: _?__ couldn't make it because of some critical staff meeting ahead for him so I did get a call from him. Let's introduce ourselves. I'll start with me. I'm Miles Ferris, Santa Rosa. [BW Comment: Miles Ferris is chairman of the committee and also Director of Santa Rosa's Bureau of Public Utilities.] Introductions: Virginia Porter, City of Santa Rosa. __?__ , North Marin Water District. Said, North Marin Water District. John Nelson, Consultant. Inaudible. Ken Anderson, SCWA. Bob Smith, SCWA. Inaudible, Santa Rosa; George Roberts, Forestville Water District. Inaudible. Dana Roxon, Marin Municipal. Randy Coburn, City of Sonoma. __?__, Valley of the Moon Water District. Michael __?__. Joe Gaffney, City of Rohnert Park. Mark Lawler, Water Agency. Pam Jeane, Water Agency. Robert Beach, Water Agency. [BW Comment: __?__ indicates inaudible also. Tape recorder was turned up to the maximum.] Miles Ferris: Comments from the public? [None] Brenda, you're very quite today. [BW Comment: Brenda is Brenda Adelman of the Russian River Watershed Protection Committee.] Chairman Ferris: Approval of July 24th Meeting Minutes: Objections? Corrections? Moved and seconded. Agenda Item E: Amendment 12? Have a list of comments for the September meeting. Agenda Item F: Status of Approval of Amendment 11: It's all in the hands of one city. Wait a week or two and see what happens. Pam Jeane of the Water Agency said that after all cities and districts sign Amendment 11, Randy can sign for the Water Agency or [if they don't sign] Randy can begin with county counsel to move ahead and draft a new agreement. She added that she thinks they [Petaluma City Council] have to vote tonight. Petaluma Water Contractor Steve Simmons: Looking at August 30th when all the council members will be present to decide. Agenda Item G. Status of Approval of MOU re: Interim Impairment [BW Comment: This accompanies Amendment 11.] John Nelson, WRM: [Inaudible] Comments on Cotati: MOU? [Inaudible] Santa Rosa, Cotati and the Water Agency still have to approve the MOU. I have drawn up an agreement without Cotati. I don't know why in the world they'd want not to be in that MOU. They use about a third of their well supply. Their own statements are that they want to minimize that use. Agenda Item H. Presentation on Potter Valley Project: Robert Beach -presentation of information passed out at last WAC meeting (bring with you) and report on current status of negotiations Robert Beach: Most of you know that Sonoma County Water Agency on August 9th announced that it had joined in a settlement agreement filed with the California Public Utilities Commission involving PG&E's hydroelectric facility - all their electric facilities. The agreement calls for PG&E Corporation to retain the hydro facilities within a California- based facilia (?), yet to be named. The other signatories to the agreement include PG&E, Utility Reform Network, TURN - used to be Toward Utility Rate Normalization, a self-appointed ratepayer watchdog-type group, the California Utility Employees which represents the employees of PG&E, Agricultural Energy Consumers Association, California Retailers Association, Tuolome Utility District - all in the settlement proposal. If the Commission approves this settlement, it gives the Sonoma County Water Agency the option of acquiring the Potter Valley Project. If either PG&E facilia (?) or any later owner, any successor in interest, whatever, decides to abandon and decommission the project, the proceeding before the Commission could have resulted in the Potter Valley Project being auctioned to an out-of-state corporation having no regard for the interests of the water users in Sonoma, Mendocino, and Marin Counties - though, of course, depends on your version. Perhaps the most important thing about this settlement proposal is the fact that the settlement __?_ PUC takes away the risk that each of the owners can file an application with FERC __?_ license ___?_ which would have the effect of putting the decommissioning of the Potter Valley Project in place for FERC or the legal language giving FERC the position to consider the decommissioning of the project. Where do we go from here? Under the settlement discussions before the commission under their Rule 51, parties have 30 days from the date of the serving of the settlement to file comments contesting all or part of the settlement. The reply comments to the comments are due 15 days after that. The usual procedure is that the settling utility, PG&E in this case, would take the lead in drafting the reply and the parties to the settlement that are signatories, such as the Water Agency, join in those. And that's probably what will happen. Discovery is permitted in this proceeding, which means you can ask people for information. If the settlement is contested on any material issues of fact, the Commission must schedule a hearing as soon after the close of the comment period as reasonably possible. Parties to the settlement must present witness and undergo cross examination. The Agency may need to defend... Actually when we signed the settlement agreement we amended our 1965 agreement with PG&E and that gives us the option to purchase the project. In the testimony and cross examination we probably will have to defend or discuss that - the amendment to the '65 agreement that was filed with FERC. I mean with the Commission along with the settlement agreement. There's a wrinkle in these proceedings: the Office of Ratepayer Advocates, I mentioned TURN, a self-appointed watchdog for ratepayers. There's also a statutory watchdog for ratepayers staffed by public servants and that's the Office for Ratepayer Advocates. In response to the settlement proposal... [BW: FOR A (?) [sounds like 4A (?) Not clear which organization this is: statutory or self-appointed watchdogs.] "...FOR A" has filed a motion...moved the assigned commissioner to reject each of the proposed settlements immediately and summarily. They go on to say, on its face the proposed settlement is discriminatory, anti-competitive, in violation of the Commission's non-affiliate rule, untimely, and beyond the scope of the proceedings. Basically, they ask for a summary dismissal of the settlement proposal without the [phrase inaudible]. All this is occurring in a setting which is quite fascinating. On August 2nd, Loretta Lance who's the president of the Commission, Michael Kahn, Chair of the Electricity Oversight Board, sent a report to Governor Davis titled "Electricity: California's Options and Challenges." Basically what has happened starting about a year ago, natural gas prices, which drive energy prices, electricity prices because marginal production of electricity is by combined cycle gas turbines, changes gas to electricity. In the last year natural gas prices have doubled. And in the last three months electricity prices have skyrocketed. In Saturday's *Wall Street Journal* ...PX, the California Power Exchange on August 15, 16, 17, and 18th respectively was $157, $173, $167 and $157 a megawatt hour. Last year in August the average price was $25. Prices have been as high as over $500. That's for peak hours. In fact, the independent system operators announced they dropped their cap: the maximum they would pay was $500 [inaudible]. These are astounding prices. And it's in this context that the PUC is considering this settlement proposal. Basically everybody in the state involved in the regulatory system is diving for cover, trying to find a place to hide. Explosion in prices. First of all, it's manifested itself as user rate increases in San Diego because they're deregulated. Here we're still protected by the rate freeze. It's a time bomb. The political reverberations are going to be immense. So it's in this context that the Commission is considering what to do with the settlement proposal. The Commission is basically Governor Gray Davis. He's appointed a 3rd member who's very responsive to him. We're going to have to wait and see. PG&E obviously thinks they have a chance with the governor. It's a very hot situation. It'll be fascinating to watch. Our participation in that was to cover our bases. If in fact there was a settlement, we wanted to be in it. If the settlement doesn't go through, we're no worse off than when we started. We think we've hedged our bets really well. The larger issue is really amazing. The report to the governor went out just last week. The executive summary says, California is experiencing major problems with electricity supply and pricing. Californians have seen both electricity volatility exemplified by huge increases in wholesale electric prices and increases in retail prices in San Diego and supply and delivery system instability culminating in unprecedented blackouts in the Bay Area. Since June wholesale prices for electrical power in California increased on average 270% over the same period last year resulting in over $1 billion in excess payments for electricity. During the week of June 14th purchasers of California power spent $1.2 billion on electricity, 300% more than they paid for the same period in 1999 and 1/8th of their cost of power for all of 1999. That was for one week. Hot weather, aging power plant and transmission infrastructure, dysfunctional bidding behavior in the wholesale power market combined to drive prices up and create inadequate electricity supplies in the Bay Area. This report is 43 pages and in 43 places it's blaming everybody but the PUC for the problem. And there are a lot of weaknesses in their analysis. One of the weaknesses is that it doesn't talk about anything but California. These phenomena are not just California. They extend throughout the Northwest to farming country to Four Corners. California is sucking the whole Western United States dry of marginal production capacity at peak times and it's affecting prices. Another story in the *Wall Street Journal,* High prices in Washington and Montana - businesses are closing. They just can't afford to operate. This is the setting for the Potter Valley Project settlement. Maybe I should stop here and ask if anybody has any questions about the CPUC proceeding? Said: What's the role of the Agency right now? Robert Beach: There're two agreements which the Agency signed. Many years ago in 1965, the Agency entered into an agreement with PG&E, and among other things secured an option to acquire the Potter Valley Project. At that time the Agency was looking at two contingencies that were of concern to them. One was the PG&E license was going to expire in 1972, and they were starting the relicensing process. There was a question of whether the project would be relicensed. The second thing that was happening was the consideration in the construction of __?_ Dam which would have inundated the diversion of the dam for the power project and caused some major impacts...[garbled] In anticipation of those conditions, the Water Agency agreed to support PG&E's application. PG&E agreed to sell the project to the Water Agency if they couldn't get it relicensed. PG&E agreed to operate the power project in a manner to facilitate - enhance the water. The Agency agreed to maintain a number of check structures below the powerhouse in Mendocino County in consideration of this agreement. The agreement is still effective. What we did is we renegotiated that agreement taking up the __?__ option, used that as a vehicle to get a new option. In return for that option, we said we'd support your proposal for a settlement. There are some other things in the settlement that are advantageous to us. One of them is PG&E agrees to keep the project for 10 years. The settlement agreement is subject to PUC approval and our agreement is contingent upon it. If the settlement doesn't happen, the amendment doesn't become operative. We still have our 1965 agreement. And there's still some language in that agreement that's beneficial to us. So we wouldn't have an option. And we'd we back to GO, right where we are now. We do have the power of eminent domain. We can always acquire the project. One of the things the agreement does, it not only provides us an option for the project but it's a formula for a price - at a fixed price. The contingency is in the formula. What it is is the present value of a net after tax cash flow in the project up until the current license so as we approach the license period, the price gets cheaper and cheaper - 2022 we can just take it over. You can see what this energy price explosion does to the value of the project. The present value after tax cash flow - $180 a megawatt hour. Question: If PG&E is paying these market prices why does it have to __?__ at the wholesale level? Mr. Beach: Independent system operators are paying the price. PG&E is an operator. These are market prices bid through the PX, the California Power Exchange. It's like the stock exchange. It's a day ahead bid. It's like a commodities bid - every day. It's on the Internet. In answer to a question about the ratepayers watchdog groups, Mr. Beach said they want to reregulate the power companies. And a problem with PG&E is that as soon as energy prices stabilize, PG&E may just turn around and decommission the project. It's economic today but it was only marginally economic last year. Relicensing the project is an immense undertaking. We argued in favor of PG&E retaining the project before the PUC. Except that's not our position anymore. Now we support the spin off. One of the things that's troubling about the ORA (?) filing is this. They raised the jurisdictional issue. PG&E's application was for permission to auction [or is it option?] the facility. The settlement says that PG&E is going to transfer to an affiliate for a stipulated amount of money, $2.6 billion. This is far out. It's in left field. This has nothing to do with the case sitting before FERC. This is an original proposal. It doesn't belong here. That's a procedural issue.That could cause __?__. A question about PG&E's application: Their original application was to spin it off to their affiliate and have it not to be regulated. And then that wasn't working. So they withdrew that application and filed this application which is pending now which was permission to auction off. Virtually everybody is against that. The only people for are the independent power producers who want to buy the plant. Strange bedfellows: all the environmental groups are together with all the water districts together with all the ratepayer advocates, the unions. They're all against that. So PG&E said, Wait a minute - the settlement - which goes back to the first alternative: Spin it off. But now it's not spin it off and deregulate it. It's spin it off and we'll share 90% of the profits for 35 years with the ratepayers. So if it's deregulated, the economic benefit will continue to flow to the ratepayers for 35 years. Some of it's for 40 years. At the end of 40 years they'll declare it's unregulated. In the meantime, they'll share the revenue: 90% goes to the ratepayers and only 10% goes to the ___?__. Chair: One of the issues with the spin off that came up in one of the legislative bills is the hundreds of acres owned or controlled by these electric utilities. Historically they've been open but they may be closed when PG&E sells to a private group. 3500 acres is associated with the Potter Valley Project. These are excess lands dedicated to public use. The value of the project may be in the land and not in anything else. It gets to be a very very complex issue very quickly. It's something that's a lot different from what it first appears. Robert Beach: The excess lands that we're referring to would be dedicated to public use either through a conservation easement or some __?__. That was not enough to being the environmentalists on board. [The last sentence is inaudible.] The next thing I want to talk about is the other forum with the Federal Regulatory Commission (FERC). The left hand with the state. The right hand with the Feds. FERC issued its final environmental impact statement (EIS) on several proposals to modify the flow schedule down the Eel River. It has the effect for the fisheries of reducing flows through the tunnel to the Russian River basin. Several agencies have responded to the Final EIS. The Water Agency has completed its comments and is in the process of filing them with FERC. There are two documents being distributed. One is "Proposed Changes in Minimum Flow Requirements at the Potter Valley Project," impact on fisheries prepared by Surface Water Resources, Inc. There were gross errors in the methodology used to simulate flows. It was acknowledged by all parties. We filed a petition asking them to issue a supplemental EIS. Virtually every party joined us. FERC ignored the request and went ahead and issued the Final EIS. They fixed some of the errors but not all of them. The Final EIS is also technically flawed. The hydrologic modeling for the Eel isn't too bad, although the Department of the Interior disagrees with that. We pointed out their errors in the Russian River. Basically our comments say we're not quarreling with your Eel River stuff. The Russian River modeling was very flawed. It grossly distorted the impact on the Russian River. NMFS took a different tact, a kind of go-back-to-nature type thing. FERC was obligated to consider decommissioning as an alternative. FERC said they're not. The Final EIS shouldn't balance the impacts to Russian River water users against the Eel River fisheries. And fourth NMFS said the Final EIS should analyze measures to increase water storage in theRussian River. The Department of the Interior deals almost exclusively with the modeling issue. They point out that FERC only used a 21-year modeling period. They should have used the full 67 years which we provided to them. The Round Valley Indian Tribes advanced a legal argument that the Commission should have considered decommissioning. The comments were filed by Stephen Quisenbury who's also a fine attorney and troublesome. They are probably going to challenge on the decommissioning issue. We don't agree and FERC doesn't agree, but it signals to me that the Indians are going to challenge in court. Not that they'll prevail, but it's a long process. Procedurally, on June 26, NMFS told FERC that as a result of the issue of the Federal Endangered Species List they've pulled a new time period under the Endangered Species Act for a biologic issue and a biological opinion and that now they would issue their biological opinion. What they said is that Final EIS complicates a new biological assessment; therefore, what we have to do now is prepare a new biological opinion. You'll recall we already prepared a draft. We tried to prepare a draft, asked for a time extension, got a time extension, finally issued a draft. FERC sent back their comments. On the last day when they said that the Final EIS was coming out, Can we wait? On October 23 a new biological opinion will be due. FERC has asked to see a draft of that. So, it goes on and on. The major parties all agree, the Final EIS is flawed. We'd be willing to have it on the record if it supports our alternative on balance. Are these terms manageable - at least in terms of transmission water supply. They do have a very substantial impact on the ag community all the way down to Alexander Valley. They rely on the Russian River for the water supply. The impacts are consistent and manageable - except decommissioning. [The audible is combined with the inaudible.] If something doesn't go through, then you're at risk. _____End Robert Beach's report on the Potter Valley Project. Remaining Items K through T Monday, August 21 Petaluma City Council Meeting: Tuesday, August 22, 2000 BOS Meeting: Reply to Petaluma Thursday, August 24, 2000 WQCB Workshop: Gravel Extraction Water Quality Issues Workshop Friday, August 25, 2000 NCWQCB Meeting: Leaking underground storage tanks can wreck your life. Above-ground tanks even worse. Pacific Lumber's Bear Creek Mess. Ag Commissioner's Report re Pesticides, Spraying Threat to Water. New: Storm Water Drainage Required for cities AND SMALL COMMUNITIES, Graton, Occidental, etc. On the Horizon: |