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November 19, 2020  |  Written by Ellen M. Simmons

Is Third Time the Charm for Klamath Dam Removal Project?

On November 17, California, Oregon, PacifiCorp, and the Yurok and Karuk Tribes announced a new agreement with the Klamath River Renewal Corporation (KRRC) to reaffirm KRRC’s status as dam removal entity and provide additional funding for the removal of four hydroelectric dams on the Klamath River.  The Memorandum of Agreement (Agreement) is the latest development in a decade-long effort to remove the J.C. Boyle, Copco I, Copco II, and Iron Gate Dams, long-advocated by Agreement proponents as a means to increase salmon populations.

PacifiCorp, a subsidiary of Berkshire Hathaway and owner of the dams, agreed in the 2010 Klamath Hydroelectric Settlement Agreement (KHSA) that the dams could be removed in exchange for specific conditions intended to protect its customers’ financial interests.  The first major roadblock towards completing the project occurred in 2015, when the United States Congress failed to pass authorizing legislation required by the KHSA.  As a result, the KHSA was significantly overhauled in 2016 (Amended KHSA), such that it would not require new federal legislation for its implementation.  The Amended KHSA provided that, when certain conditions were met, PacifiCorp would transfer the Federal Energy Regulatory Commission (FERC) license for the dams to KRRC.  KRRC would then obtain the necessary permits to remove the dams, surrender the license, and remove the dams.  The original and Amended KHSA provided the plan for funding the dam removal effort, with PacifiCorp in Oregon and California providing $200 million, and funds from the 2014 California water bond – Proposition 1 – available for financing the remainder of the cost, up to $450 million .

The project encountered a second obstacle on July 16, 2020.  FERC responded to the request to transfer the license with an order conditioning approval of the transfer on PacifiCorp remaining as co-licensee with KRRC.  Per both versions of the KHSA, PacifiCorp’s participation in the project is contingent on its transfer of the FERC license, property interests, and indemnification of liability to protect its shareholders.  Although FERC’s order acknowledged KRRC’s technical ability to remove the dams and the Amended KHSA’s considerable budget, the agency thought it appropriate for PacifiCorp to remain involved in the event unexpected costs exceeded the budget.

The Agreement entered this week attempts to address PacifiCorp and FERC’s concerns by requesting the removal of PacifiCorp from the FERC license, and adding the States of California and Oregon as co-licensees with KRRC.  Additionally, the Agreement increases the contingency fund available for unexpected costs while seeking to maintain the core liability protections assured for PacifiCorp in the Amended KHSA.  The signatories assert that this ensures adequate financial support for the project while complying with the sections of the KHSA that provide that PacifiCorp will not be a co-licensee.

The likelihood of success of the Agreement will be better known once FERC acts on the prospective Amended License Surrender Application.  The parties have committed to submit the application to FERC by January 16, 2021.  PacifiCorp will concurrently seek approval of its property interest transfers from the California Public Utilities Commission.  The parties will immediately resume planning and permitting processes with a goal of obtaining final regulatory approvals to begin the project in 2022 and remove the dams in 2023.

Opponents of dam removal are concerned with loss of energy, effects on recreation and aesthetics including landowners around the current reservoirs, potential effects on landowners immediately downstream of the dams, loss of water sources for wildfire fighting, and other factors that the Agreement parties believe have been addressed or are acceptable trade-offs.  Notably, the Agreement, like the Amended KHSA, does not address other critical issues in the Klamath basin such as water allocation.  The original KHSA was paired, legally and politically, with other settlements that provided water reliability for irrigation and national wildlife refuges, and regulatory and cost protections to mitigate consequences of dam removal on Upper Klamath basin agriculture.  The bond between the various settlements was severed when the other settlements terminated due to lack of the same legislation needed for the original KHSA.  The 2016 Amended KHSA contained a promise to engage in good faith efforts to enter into agreements pertaining to water, fisheries, land, agriculture, refuge, and economic sustainability issues in the Klamath Basin, within one year.  This commitment has not received serious attention from Amended KHSA parties and the Agreement does not address this issue.

For more information on the Agreement, please contact Ellen Simmons at esimmons@somachlaw.com or Paul Simmons at psimmons@somachlaw.com.

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