January
25, 2005
Dear Water and Power
User:
This letter has been
prepared to update you on the efforts of the Klamath Water Users Association
(KWUA) regarding power issues that affect all Klamath Project irrigators. We
also have available the comments recently submitted to the Federal Energy
Regulatory Commission (FERC), which provide additional detail on the history of,
and our position on, the 1956 power rate currently paid by Klamath Project
irrigators.
The 1956 PacifiCorp
contract and the utility’s license to operate the Klamath Hydroelectric
Project both expire in early 2006. If a similar power rate arrangement cannot be
reached by that time, irrigators throughout the Upper Klamath Basin may face
considerably higher power costs.
In early 2005,
PacifiCorp will send to all irrigators in the Upper Basin a “mock bill”,
which will essentially take recent monthly bills for two complete years and
recalculate the costs that would be incurred under the 2006 tariff structure.
Similar mock bills have already been provided to irrigation districts, and the
anticipated cost increases associated with district-only pumping costs are
considerable – roughly 10 to 15 times higher than current costs.
KWUA is engaged in
pursuing all available avenues to avoid large power cost increases associated
with the contract termination. The association has a direct and substantial
interest in ensuring that its members continue to have access to an adequate
supply of low-cost electrical power. The association also has a similar interest
in ensuring that its members’ access to adequate water supplies to meet their
irrigation and domestic needs is not hampered by the future operation of the
Klamath Hydroelectric Project. The environmental and operational aspects of
PacifiCorp’s license application could affect water use throughout the Klamath
River Basin.
This letter has been
prepared to outline the actions undertaken by KWUA since 2001 to address power
issues.
Overview KWUA
Power Committee Actions
The Klamath Water
Users Association (KWUA) is a non-profit corporation that has represented
Klamath Irrigation Project farmers and ranchers since 1953. Our members include
rural irrigation districts and other public agencies, as well as private
concerns operating on both sides of the California-Oregon border. KWUA’s Power
Committee, consisting of volunteers from the local agriculture and business
community, have over the past four years prepared a strategy to engage in the
FERC relicensing process and to advocate for continued affordable power for
Upper Klamath Basin agriculture.
KWUA Renewable
Resource Energy Audit
Because of concerns
that the 2006 contract renewal would not confer continued provisions for
affordable power rates to Klamath Project irrigators, KWUA in 2001 hired
Symbiotics, LLC of Rigby, Idaho to prepare a report that outlined the
opportunities and constraints available to address water users’ energy needs.
The intent at that time was to examine options that could provide long-term
benefits to water users and to develop a roadmap for KWUA to achieve energy
self-determination. The report provided an initial determination of major
sources or sites for energy development, their feasibility, approximate cost,
and time frame for development. Key
conclusions and recommendations from that report were:
The report
recommended aggressive pursuit of a more in-depth investigation of local
hydroelectric projects. This recommendation was shortly followed up on by
Klamath Drainage District, who filed an application for a preliminary permit
with FERC for Keno Dam. Recent announcements by the Bush Administration also
suggest support for developing more low-head hydropower in the western United
States.
KWUA’s Power
Consultant
After months of
soliciting proposals, reviewing qualifications and interviewing potential
candidates, KWUA in late 2003 entered into an agreement with a Portland law firm
to guide the association’s efforts to address pending electrical power issues.
KWUA signed into a formal agreement with Cable Huston Benedict Haagensen and
Lloyd, to provide the association with professional legal and other consulting
guidance as Klamath Project irrigators face the expiration in 2006 of a
contract, which presently provides for power pricing in the Klamath Project.
Klamath Project Power Contract
The
Klamath Project’s power contract dates to 1917, when PacifiCorp's predecessor,
Copco, negotiated a deal with the U.S. government to build Link River Dam. The
power company received the run of the river and storage benefits for hydropower,
while the government and water users received affordable electricity for the
Klamath Project. PacifiCorp and the federal government negotiated the current
50-year deal in 1956. KWUA was formed in 1953 in part to
specifically address the power contract that was in place at that time.
Klamath
Irrigators’ Legal Rights to Power Benefits
We
believe the farmers of the Klamath Basin have certain legal rights that are
reflected in the conditions on the current FERC license, and any entity that
acquires a new license will be required to offer low cost power to the farmers,
or equivalent consideration. In essence, the water users have a right to
power benefits. This matter is further outlined in the memo prepared by
Cable-Huston. This 20-page memo is
available at the Klamath Irrigation District office.
Relationship Between Klamath Project Water Users and Off-Project
Irrigators
KWUA represents irrigation districts and other local entities that provide water to farmers and ranchers of the Klamath Project. Because the Klamath Project is a federal project, and particularly because of the contractual relationship that exists between irrigators and the Bureau of Reclamation (Reclamation), Project irrigators have different approaches to address the 2006 rate issue than those available to our neighbors outside of the Project. The so-called “off-Project irrigators” have hired a Portland attorney to represent them on FERC and contract negotiation matters. While the two groups have different strategies in these arenas, there is interest to try to coordinate on other issues, with a structure that might include KWUA providing an “umbrella” for the off-Project efforts, wherever the two groups can work together.
Past Position of the U.S. Bureau of Reclamation
The Reclamation Act
was enacted in 1902 to encourage irrigation and homesteading in western states.
It was anticipated that the irrigation would require two interrelated
resources: water and power. Reclamation asserted legal claim to all residual or
inchoate water rights within the Project boundary.
Reclamation also has authority to develop hydroelectric power projects.
Within the Klamath Irrigation Project, Reclamation gave permission to Copco to
begin developing key components of the Klamath Hydroelectric Project pursuant to
terms of the 1917 agreement. In 1951, Copco sought a federal license for two new
hydroelectric facilities—now known as JC Boyle.
Reclamation and local interests vigorously opposed the license, as it
would impede the federal agency from ever developing its own power resources.
FERC interpreted Reclamation’s objection as an exercise of Reclamation’s
mandatory conditioning authority under Section 4(e) of the Federal Power Act.
FERC ultimately issued the license solely upon the condition that the
1917 agreement be renewed for the term of the license.
We believe that any
license issued for the Project beyond 2006 should be subject to a similar
condition. The terms of the current
contract were intended to be in place so long as PacifiCorp impedes
Reclamation’s ability to develop power resources within Project boundaries.
Again, in other words, the power company
received the run of the river and storage benefits for hydropower, while the
federal government and water users received affordable electricity.
Federal Agency
License Conditioning Aut
hority
Under law, federal
agencies can require conditions for projects located on or within federal
“reservation” lands. In general,
the agency can require conditions to ensure that the hydro project, as operated
pursuant to the license, is consistent with the basic purpose of the federal
reservation. Reclamation is entitled
to require license conditions to ensure that the hydro Project license is not
inconsistent with the irrigation purposes of the Klamath Irrigation Project. In
addition to the mandatory conditioning authority, there are several other bases
under the Federal Power Act upon which FERC would have discretion to condition
PacifiCorp’s license.
PacifiCorp’s
Application to FERC
We
have monitored PacifiCorp's collaborative pre-filing consultation process for
the Klamath relicensing for the past several years. We generally support the
PacifiCorp application as presented, although we have formally submitted
specific concerns to FERC. This support is concurrent, of course, with an
understanding that all practical measures will be taken to ensure that continued
affordable power rates are provided to Upper Basin irrigators.
This process is one
of several that the association is currently involved with, and at the present
time, it is difficult to discern which process or combination of processes will
lead to success. If our negotiations with PacifiCorp (see below) do not bear
fruit, we have alternate, more aggressive, and political strategies that we will
pursue. Our involvement in these forums is briefly discussed below.
Direct
Settlement Negotiations with PacifiCorp
We are working with
Reclamation and the U.S. Department of Interior to ensure that PacifiCorp
respects the history and justification behind the fact that the current rate
schedule is a reasonable consideration of the relationship between the Klamath
Hydroelectric Project and the federal Klamath Irrigation Project. We continue to
meet with PacifiCorp to determine whether we can negotiate an agreement that,
from our end, is driven by an understanding that this relationship has not
changed in the past fifty years. We
should know early 2005 whether we can reach an agreement with PacifiCorp on this
matter.
KWUA’s
Role in FERC Relicensing
KWUA
in October formally filed its motion to intervene in the FERC relicensing
proceedings. While we continue to
work to reach a settlement with PacifiCorp, we assert that no entity should
receive a new license unless it is willing to enter into a low cost power supply
contract for the irrigation project as occurred when the hydroelectric project
was last licensed. We also assert that, regardless of whether the new
license will be conditioned on the execution of a new contract, the existing
license is so conditioned and, therefore, any extension of the license should be
conditioned on honoring all existing commitments contained in the license.
FERC Relicensing Settlement Process
PacifiCorp is now
moving forward with a relicensing settlement process.
Participation in the settlement process has both benefits and risks. As a
dues-paying member of the association, you should feel some pride that KWUA has
been identified as one of the few stakeholder groups that has been invited to
the settlement table. However, we need to carefully gauge our involvement with
this process as it bears on our ability to fully engage in FERC, particularly if
we oppose PacifiCorp’s license renewal, should they fail to commit to deliver
us a meaningful rate package.
Other Actions
KWUA is also working
in other venues to address the power rate issue. We are preparing to engage on
several matters before the Oregon and California Public Utility Commissions.
Also, from the inception of our work, we have been assessing and pursuing
legislative, political and public relations strategies to address the 2006 rate
issue. We will absolutely need the support of you and the rest of our community
as we define specific objectives in the coming year.
Finally, we are also preliminarily considering the feasibility of forming
a new publicly or cooperatively owned utility (co-op).
Conclusion
We hope this provides you and your neighbors with a better sense of our involvement on the power rate issue. Our engagement on this issue occurs on a daily basis, and we are working hard to address the changing situation, as new developments and politics require us to adapt. Lynn Long, a landowner who farms within the Klamath Drainage District, is chairman of KWUA’s Power Committee. If you have further questions about the status of our power rate negotiation activities, we urge that you contact Lynn, KWUA, or KID.
Sincerely,
David Solem,
KID Manager, KWUA Board Member