Big Dam Fight

[December 3rd, 2008]

When the Legislature meets next month, its to-watch list will include a fight pitting the world’s richest man against several of the state’s biggest companies in a dispute affecting 550,000 Oregonians and uncounted numbers of salmon.

Multibillionaire investor Warren Buffett, who owns PacifiCorp, will send a team to the Capitol to ratify a tentative deal his utility struck last month with the feds and the states of Oregon and California to demolish four dams the utility owns on the Klamath River in 2020.

Standing in the way of the Legislature approving the proposed deal are some of Oregon’s biggest employers, represented by the group Industrial Customers of Northwest Utilities. Among those employers: Georgia Pacific, Weyerhaeuser and Intel.

Art Sasse, a PacifiCorp spokesman, says the agreement caps ratepayer costs for removing the dams at $200 million, a limit he says is good news for the utility’s 550,000 Oregon customers.

And Sasse calls the deal a cheaper, simpler alternative than relicensing the dams. The dams have been a flashpoint for more than a decade between farmers in southern Oregon, who want the water, and fish advocates, who say the dams kill fish with low water levels and poor water quality. He says PacifiCorp reversed its earlier reluctance to remove the dams when the opposition became overwhelming.

The dams proposal has divided environmental groups. Some, such as Oregon Wild and WaterWatch, say the deal provides insufficient water and habitat for fish. Yet some California groups favor ratification of the proposal.

“Opponents of the dams made it clear that they would make it as uneconomic as possible to keep them” by requiring $300 million worth of fish ladders, Sasse says. “And the states and the feds made it clear that they wanted the dams out.”

ICNU attorney Melinda Davison, however, says Oregon ratepayers will bear a disproportionate share of the cost.

“There’s not enough time in the day to describe how badly Oregonians are getting abused in this deal,” Davison says.

Historically, she says, costs and benefits of capital projects such as dam removals are spread proportionately across PacifiCorp’s six-state system.

But in the case of dam removal, Oregon customers could bear 90 percent of the $200 million cost, even though Oregon accounts for only about 26 percent of PacifiCorp’s system.

Bob Jenks, director of the Citizens Utility Board of Oregon, which represents individual ratepayers, agrees with ICNU’s Davison.

“There’s a mismatch of costs and benefits,” Jenks says. “The benefits of the dams flow to other states in their system, such as Washington, that aren’t paying a dime.”

Sasse calls that argument a red herring, adding, “This is an agreement between two states, not the six that are in our full PacifiCorp territory.”

The allocation of costs roughly approximates the ratio of PacifiCorp ratepayers in Oregon and larger California.

Although the impetus for PacifiCorp’s agreement to remove its dams was the river’s health, ICNU’s members are most concerned with power costs (ICNU is neutral on whether dams should be removed). Davison, whose clients were excluded from talks between PacifiCorp and government negotiators, says the deal heavily favors PacifiCorp because the utility wouldn’t be on the financial hook for potential legal problems such as environmental messes associated with dam removal. She warns that could mean passed-on costs above the $200 million ratepayer cap.

The agreement calls for California to seek voter approval of a $250 million bond to cover dam removal costs above the $200 million cap for customer expenses. But passage of such a bond isn’t guaranteed.

PacifiCorp, Oregon’s second-largest utility behind PGE, has pushed back hard against Davison, a longtime nemesis. Utility officials have accused her of having a conflict of interest because, in addition to ICNU, she also represents a group called the Klamath Off-Project Water Users, a group of farmers who historically get very cheap electricity from the dams.

“There is no conflict,” Davison says. She says both clients are aware of each other and have waived any potential conflict. And, Davison adds, they have the same fundamental interest—low-priced power.

Sasse says PacifiCorp’s proposal addresses the bottom-line concerns of Davison’s clients and all PacifiCorp clients.

“It’s a matter of understanding that they pay less under our proposal than in any other scenario,” Sasse says.

A spokeswoman for Gov. Ted Kulongoski says the legislation authorizing the Klamath dam removal is a “priority for the governor” and will be introduced early in January.