PG&E to abandon 2 Shasta County dams
Wildlife officials hail move to restore free salmon run on pair of creeks
By Don Thompson
Associated Press

in Press Democrat
March 24, 2005

SACRAMENTO - California's largest utility said Wednesday it will not renew its license to operate a small Shasta County hydroelectric project, dedicating the water instead to threatened salmon and steelhead trout.

State and federal wildlife officials and environmental groups praised Pacific Gas and Electric Co.'s agreement, which they hope will spur similar decisions by other utilities as several hundred dams come up for re-licensing in the next few years.

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Copyright 2005 by Associated Press

Monumental deal for PG&E land:
140,000 acres of utility's upper watershed to be protected for wildlife, outdoor enthusiasts
By Paul McHugh, staff writer
San Francisco Chronicle
April 2, 2004

Pacific Gas and Electric Co.'s bankruptcy reorganization has resulted in a windfall for California's environment: A vast acreage of pristine mountain land owned by the utility will be permanently protected, and a $100 million fund will be created to maintain it and open it to recreational use.

From Mount Shasta to the Carrizo Plain, nearly 1,000 parcels totaling 140, 000 acres -- almost twice the size of the Golden Gate National Recreation Area -- will be donated to parks and wildlife agencies or protected through conservation easements.

The land includes important wildlife habitat and many sources of the state's drinking water, as well as some of the best fly-fishing streams in the western United States. There are fragrant conifer forests, rich stands of hardwoods and rolling oak savannahs, pierced by glittering rivers.

Under a deal reached with the California Public Utilities Commission, some lands will be protected as wildlife preserves, while others will be opened up to new trails, boat ramps and campgrounds.

Environmentalists, sportsmen and outdoor enthusiasts are hailing the agreement as one of California's most important conservation deals in decades.

It's one of the top transactions for preserving valuable habitat in this state in the last century," said John McCaull, who was the state legislative director for the National Audubon Society when the issue was under debate. "You'd have to look at creation of the national parks here to find anything comparable."

Although PG&E's court-approved bankruptcy reorganization was announced in December, the PUC is just now describing details of the landmark conservation agreement.

Under the settlement, PG&E will transfer its upper watershed lands to a public trust. A newly created, 17-member committee, the Pacific Forest and Watershed Stewardship Council, will devise management plans for individual parcels and submit them to the utilities commission for final approval.

The deal also establishes a $100 million fund paid by PG&E ratepayers to manage the land for 10 years: $20 million for planning; $50 million for rehabilitation and improvements such as trails, river corridor restoration and re-forestation; and $30 million for urban youth outdoor programs.

"These lands will now be preserved in perpetuity in the public interest, instead of being broken up and the ownership scattered. That's a dream come true,'' said William Ahern, the utilities commission's executive director.

The land, some of which the utility acquired in the Gold Rush era, is connected with PG&E hydropower operations. It is distributed among 981 parcels, primarily along river corridors in 21 counties. Much of it is along the Pit, Feather, Yuba and American rivers. It also includes 655 acres of the Carrizo Plain in San Luis Obispo County.

The lands hold substantial stands of mature Douglas fir, lodgepole pine, cedar and other trees. They also include blue-ribbon fly-fishing streams, such as Hat Creek between Mounts Shasta and Lassen, where anglers stalk native rainbow trout up to 2 feet long.

About 95,000 acres adjacent to hydropower operations can be protected only through conservation easements. Of the remaining 45,000 acres, some may be involved in land swaps, some may be targeted for recreational use, and some may be logged selectively in demonstration projects.

" This will be the biggest, most comprehensive planning process for hydropower lands anywhere in America,'' said Charlton Bonham, an attorney for Trout Unlimited and the California Hydropower Reform Coalition, who helped carry a torch for the environmental community during the legal proceedings.

Other conservation groups that were closely involved in the process were the Natural Heritage Institute and the Trust for Public Land, both in San Francisco. The state Resources Agency and the attorney general's office spearheaded the proceedings.

A spokesman for PG&E said the company is pleased with the outcome. The utility will benefit by keeping the hydropower plants while seeing the lands move to a new form of protective management.

" We're extremely excited -- this is a landmark event," said Randy Livingston, the utility's director of power generation, who will serve on the new council. "Folks have always appreciated the level of stewardship we've applied to those watershed lands. Now we can keep something like that in place."

PG&E was born in the Gold Rush, installing power-generating turbines on mining flumes. Gradually purchasing the assets and acreage of other small generating firms, the utility built itself into Northern California's major power source as well as one of the state's top 10 landowners.

PG&E was a regulated monopoly until the administration of Gov. Pete Wilson and the state Legislature started deregulation. The utility lobbied for the change, arguing that competition would make rates plummet.

Instead, deregulation left the company unprotected from soaring energy costs in 2000. Hobbled by a rate freeze, the utility became saddled with $9 billion in debt it looked like it could never recover from. In April 2001, it became the largest utility ever to go bankrupt.

Part of deregulation required divestment. PG&E sold off most of its non- nuclear plants as well as more than 16,000 acres of land.

Even before the bankruptcy, it looked as if the rest of its land would be sold. Conservation groups feared developers would jam the shores of mountain lakes with condos, chainsaws would level forested watersheds, and trout streams such as Hat Creek would turn into exclusive enclaves for the wealthy.

PG&E spokesman John Tremayne said the 1996 deregulation demanded that market value of assets be established. "We thought we could do that with the hydropower lands by having them appraised. We wanted to keep possession. But we got turned down. The next step was, we had to put them up for auction."

As the utility tried to divide assets, regulators and public interest groups accused it of trying to skirt adherence with at least 15 state laws. Loretta Lynch, then president of the utilities commission, characterized it as a regulatory jailbreak.

The climax came in 2002. U.S. Bankruptcy Judge Dennis Montali ruled that federal bankruptcy law did not override state laws, a decision that was ultimately upheld. Montali ordered the lead parties into negotiations.

They emerged with a new settlement that included the lands deal. The utilities commission approved the settlement in December by a 3-2 vote. Lynch and Carl Wood voted against, saying the fiscal health of ratepayers and future oversight by the commission were impaired.

However, the portion affecting watershed lands was hailed. "There's a process to guide us," said Ahern, the utilities commission's executive director. "Now, we just need to follow through. Dissension can be resolved through discussion. Having money for the process definitely helps."

The stewardship council will be composed of 17 members, from state and federal agencies, water districts, the forest and farm industries, and conservation groups. Its first meeting will occur this month, but a location and date have not been set.

Key facts about the land to be preserved under an agreement between PG&E and the state Public Utilities Commission:

• Acres: 140,000
• Parcels: 981 in 21 California counties
• Administration: A 17-member stewardship council will make recommendations to the PUC on how to manage the parcels. State and federal agencies, conservation groups, the farmand forest industries and water districts will be represented on the council.
• Cost: PG&E ratepayers will contribute $100 million for management costs for 10 years.

Copyright 2003 by San Francisco Chronicle

Watershed Issues: With PG&E and the PUC closer to resolving the bankruptcy, questions remain over who will control the utility's lands
By Dennis Pfaff
San Francisco Daily Journal
Aug 12, 2003

SAN FRANCISCO - In an extraordinary irony, the fallout from the near-collapse of California's electricity system a few years ago may result in the perpetual protection of the mountain land from which much of the power flows.

Under a scheme developed by PG&E and the staff of the California Public Utilities Commission, thousands of acres of land associated with company's vast hydroelectric system would be preserved forever, much of it through a system of conservation easements.

Or so it would appear at first glance. Significant questions remain about the plan, which was unveiled last month as part of a compromise proposal to reorganize the bankrupt Pacific Gas and Electric Co.

Its critics, and even some supporters, implied that the new environmental preservation plan goes little further to protect the watershed properties than does the current system of close regulation by the PUC. Some contend the deal could violate state law and that critical elements are unclear.

"I think there's a lot of ambiguity," said Steve Wald, director of the California Hydropower Reform Coalition, a collection of influential environmental and outdoors organizations. "There's a need for clarity in just how it would work."

Nevertheless, the proposal has won warm reviews from environmental experts.

"We're very pleased with the lands commitment," said Richard Roos-Collins, a Berkeley attorney representing the hydro reform group. "To our knowledge, it's the only time a utility has pledged to a conservation easement over all its lands."

"If we could put in a few more conservation goals and a little more certainty, I'd think it would be a pretty good outcome," said Michelle Passero, an attorney and executive with the Pacific Forest Trust in Santa Rosa.

The settlement agreement reached in June would cover 144,000 acres of PG&E land, including 95,000 acres close to reservoirs, powerhouses and other facilities. The Federal Energy Regulatory Commission regulates much of that latter acreage, which also includes scores of campgrounds and boat ramps.

The land, much of it thickly forested, surrounds the utility's widely dispersed system of more than 170 dams and 99 reservoirs staircasing down the Sierra Nevada and Cascade ranges. The property hugs the twisting courses of mountain rivers and rings lakes storing water before it rushes through turbines generating about 15 percent of the company's electricity.

It is PG&E's intention to protect and preserve the beneficial public values of these lands under the terms of any agreements concerning their future ownership or management," an appendix to the agreement said. Those values include fish and wildlife habitat and outdoor recreation. Jim McKinney, hydroelectricity policy adviser to the state Resources Agency, called the land "ecologically strategic" because of its proximity to water. "Once they're gone, you can't get them back," he said.

He noted, however, that the proposal left out nearly 40,000 acres of PG&E land, including a big parcel near the Diablo Canyon nuclear plant in San Luis Obispo County.

The agreement calls for placing conservation easements on some of the watershed land and for donating other parcels outright to public agencies, possibly the state or local governments. Land containing the hydro facilities could not be donated and the easements would not restrict hydro operations.

A nonprofit PG&E Environmental Enhancement Corp. would be created to oversee the land program, financed by $70 million from ratepayers.

The fate of the land was a major point of contention between PG&E and the PUC during the utility's bankruptcy proceedings. The parties had been pushing competing reorganization plans for the utility until, forced into court-monitored mediation, they compromised after weeks of closed-door talks.

PG&E's plan would have spun off many of the company's assets, including the hydropower system, into separate companies outside the PUC's oversight. The PUC's proposal would have kept the company fully under its regulation.

The new plan keeps state regulatory authority intact but provides for the utility to borrow billions of dollars and guarantees rates sufficient to keep the company afloat. PG&E filed for Chapter 11 protection in April 2001, at the height of the state's energy crisis. The five voting members of the PUC have yet to endorse the deal. A review by the commission started in July and a decision is expected in December.

Utility officials tout the land proposal as a major reason why the PUC ought to support the entire settlement.

" This is a powerful public-interest element of this agreement that has not previously been seen in any of the plans of reorganization," the utility said in written testimony submitted to the PUC July 25.

However, even some supporters are more subdued.

" I'd say [the watershed provision] is way more protective than PG&E's [previous] plan would be," said Paul Clanon, who directs the PUC's energy division and acts as the agency's staff spokesman on the deal. "I'd say it's not less protective than the current situation."

" Over three years, we've seen no other viable alternative put forward that could lead to consensus other than this," said Charlton Bonham, a lawyer for the conservation group Trout Unlimited.

Details about all aspects of the settlement remain obscure because of gag orders imposed by U.S. Bankruptcy Judge Randall J. Newsome, who shepherded the talks.

" There is no legislative history," Morgan Lewis & Bockius attorney Larry Engel, who represents Palo Alto, complained during a July bankruptcy court hearing.

One PUC member already has denounced the land proposal.

" I think this is a last-minute greenwash that was not properly thought out," said Commissioner Loretta Lynch, an attorney who until recently chaired the PUC. "It was not properly evaluated for its benefit to the ratepayers, which is why we don't have any details." Lynch said the settlement may violate a 2001 law. That statute prohibits utilities from "dispos[ing] of" any "facility for the generation of electricity" before Jan. 1, 2006. The PUC previously has considered certain land associated with power plants part of the facilities.

" There have been debates over whether the land is a 'facility' or not," Clanon conceded. However, he said the arrangement would be within the law because it would not impair the land's use for electricity generation.

The protective easements - binding legal restrictions on the use of the land - would be transferred either to public agencies or to conservation groups. They have become an increasingly common tool for limiting development.

Advocates say easements present numerous advantages over outright land purchases, including lower cost. Landowners can retain title and even continue commercial activities.

" It actually helps some families keep their land in farming," said James Wyerman, spokesman for the Land Trust Alliance, a national advocacy group.

Easements covered nearly 2.6 million acres nationwide as of 2000, a five-fold increase over the figure for 1990, according to the group. Easements protect about 160,000 acres in California.

Land encumbered by easements can qualify for a variety of tax breaks. Both state and federal law define conservation easements, including requiring that they preserve land for recreation, fish and wildlife or farming.

Under the Internal Revenue Code, in order for easements to qualify for a tax benefit, "they have to be perpetual," said Passero.

Beyond that, however, easements "could rule in or out almost any kind of land use," said Wald. Nelson Lee, general counsel for the Trust for Public Lands in San Francisco. They even can specify what kind of fence is allowed around a parcel of land to accommodate wildlife. Policing the easements often is up to private land trusts.

Under California law, conservation easements must be held either by a nonprofit group, such as a trust, or by a government agency.

Occasionally, easements are violated and sometimes subsequent property owners attempt to lift the restrictions. That potential could be a concern if, for example, development-minded local governments wind up with some of the PG&E easements.

But courts generally have enforced easement restrictions, according to experts. Land Trust Alliance surveys show that while some court rulings have narrowed the scope of easements, none has been overturned.

" It's not common," Wyerman said of efforts to remove easements. "But it is happening, and we think the frequency of that is only going to increase."

He said another emerging legal issue involves the accuracy of appraisals, which are critical to determining tax breaks.

Tax advantages are based on the reduction in the value of the property, Lee said. Although PG&E has pegged the land at $300 million, the company has not said how much it would try to count as a tax deduction.

Lynch suggested ratepayers ought to receive the benefits of any tax breaks accruing to the company under the deal.

Some counties, dependent on property taxes, are already worried.

" Realistically, [an easement] often reduces [a property's] value and locks it in for all time," said Shasta County administrator Doug Latimer.

PG&E holds property assessed at roughly $500 million in Shasta County, including dams and powerhouses, much of it assessed for timber production. Latimer said he had heard "absolutely nothing" from the company about the latest plans for the land.

The deal would permit some commercial use of the land. In addition to the hydroelectric exemption, the easements would allow "sustainable" timber operations and agriculture. Land "without significant public interest value" could be resold to "private entities" without restrictions.

Among the proposal's uncertainties is the precise role of the nonprofit corporation. The agreement says it will develop "a plan for protection of these lands for the benefit of the citizens of California," but much about the corporation's duties and powers is left vague.

According to the settlement, the corporation, under the leadership of an eight-person board, would work with PG&E and the PUC to develop the conservation easements and a land donation plan. It would use the $70 million, paid over 10 years, for administrative costs and undefined "environmental enhancements."

Paul Pascuzzi, a private Sacramento attorney assisting Attorney General Bill Lockyer in representing state environmental agencies in the bankruptcy, expressed satisfaction at subtle changes in wording that the utility allowed to be made in a formal statement to creditors describing the reorganization plan. Those changes, such as referring to the land corporation's "governing" board, could underscore that the body has more than advisory authority.

Subsequent statements by PG&E officials in bankruptcy court proceedings suggest the company generally intends to follow the dictates of the board, within certain limits.

" We like what the disclosure statement says," Pascuzzi, of Felderstein Fitzgerald Willoughby & Pascuzzi, said during a recent bankruptcy court hearing. However, he conceded that "an ambiguity" remains because the agreement promises only that the corporation will make recommendations to PG&E.

An even-numbered board also raises the possibility of tied votes.

" We fear stalemate," said Roos-Collins.

A bigger question concerns how much authority the PUC would retain over the land. The agreement would require the corporation to report to the PUC 18 months after its formation and every two years thereafter. However, the proposal does not specify whether the PUC would have any power to block the corporation's decisions.

PG&E officials consistently have declined to talk about much of any of this.

" Specific questions related to the conservation easements and land donations created under the proposed settlement is a topic we are not going to be able to talk about until the governing committee is created," utility spokesman Ron Low said in an e-mail response to inquiries.

Currently, state Public Utilities Code Section 851 gives the PUC broad authority to veto utility plans to sell, lease or "otherwise dispose of or encumber" its property. The agency must determine whether the action would be in the public interest. The PUC also has relied on the law to require environmental studies.

Experts are uncertain how Section 851 would apply to the new deal. The utility formerly argued that federal bankruptcy code preempted state law, but the company has dropped that contention.

Some attorneys in the case have raised concerns, however, that California law would effectively be trumped by the federal bankruptcy court's jurisdiction over the reorganization plan. Skeptics also point to a document approved by the bankruptcy court informing creditors, who are scheduled Friday to begin voting on the settlement, that the deal is subject to federal law "notwithstanding any contrary state law."

Clanon said PG&E probably would have to apply under Section 851 to the PUC either to donate the land or impose easements. The PUC would then review the transfer.

At best, Lynch said, it is unclear what advantage the proposal gives regulators over the current system, in which the PUC exercises direct authority over what the utility can do with its land.

" We can protect it anyway by telling them they can't develop it," she said.

Environmental lawyer Roos-Collins said the lands proposal "does add, maybe incrementally, maybe substantially, to the conservation protection provided by state and local laws." He said Section 851 would apply because "the estate of PG&E will remain in its current ownership," its assets subject to the commission's jurisdiction.

" We view the settlement agreement as a partial commitment of how the commission will use its discretion" under the law, Roos-Collins said.

Clanon had suggested earlier that the PUC might have to take disagreements with PG&E or the nonprofit corporation to the bankruptcy court for resolution. That would appear to significantly dilute the PUC's authority.

It is also unclear whether the proposal requires the preparation of an environmental impact report under the California Environmental Quality Act. At least one lawyer for environmentalists said it would not be necessary.

" Generally, CEQA applies when there is a risk of adverse impact on environmental quality," said Roos-Collins. "Here, I don't see that risk, in that all of the environmental laws continue to apply to each parcel."

In its testimony filed with the PUC, the utility said the commission would "retain jurisdiction to review and approve all proposed land donations or conservation easements." PG&E said the commission would conduct "any review required" under CEQA.

In the statement to creditors outlining the reorganization plan, PG&E and the official committee representing unsecured creditors, which also has endorsed the deal, stipulated that the land provision would not affect the authority of state agencies. Disputes with the corporation's governing board "would not be within the bankruptcy court's exclusive jurisdiction," the document also said.

However, they added that the court would hold authority over any claim that PG&E had failed to live up to its environmental obligations or other parts of the reorganization plan.

Meanwhile, just who would serve on the board remains unclear.

The settlement provides that the board would contain one member each from the PUC, PG&E and two state environmental agencies, plus the California Farm Bureau Federation. Three other members would be named by the PUC.

However, there is no indication how any of the board members would be appointed, and no explanation of why the Farm Bureau, of all possible outside interest groups, merited a guaranteed seat on the board.

Even Farm Bureau attorney Karen Mills was surprised.

" When I saw the written document, that was the first I had heard of it," Mills said.

She added, however, that the Farm Bureau has had a long-standing interest in the future of the hydropower system, which also provides irrigation water.

Meanwhile, environmentalists and land trust experts await their call to be on the potentially powerful panel.

" It would be good to have somebody from an environmental group on the board," said Passero.

Perhaps the final uncertainty is how much any of this will be clarified.

PG&E attorneys have taken a hard line stance against any changes to the settlement agreement, calling for the PUC to vote it either up or down. But even U.S. Bankruptcy Judge Dennis Montali, overseeing the Chapter 11 case, called such intransigence "foolish."

Critics and even supporters of the plan believe it could emerge substantially changed as a result of the PUC proceedings. Filings from the company in the bankruptcy case suggest a certain mellowing in the utility's position, with PG&E now saying only that it and its parent corporation "do not intend" to accept "substantive" modifications.

" I hope," said Trout Unlimited attorney Bonham, "there is an element of shaping what is a good conceptual road map and making it better."

Copyright 2003 by San Francisco Daily Journal

PG&E's pristine land could be ours: Bankruptcy plan moves to protect 140,000 acres
By Mike Taugher
Contra Costa Times
July 2, 2003

EMIGRANT GAP - With so much money at stake in Pacific Gas & Electric Company's multibillion-dollar bankruptcy, the future of another kind of green has been relegated mostly to the sidelines.

But a proposed agreement to remove California's largest electric utility from Chapter 11 would also secure the future of stunning canyons, granite outcrops and the vistas over blue alpine lakes in the company's sprawling real estate holdings.

The property, part of the largest privately owned hydroelectric system in the nation, would no longer be under the threat of commercial logging or development that some feared in PG&E's plan to spin off those assets to a deregulated affiliate.

Under a proposed settlement, which still faces tough scrutiny over its effect on PG&E ratepayers, the company would continue to generate hydroelectricity at rates dictated by state regulators, and 140,000 acres would be stripped of development rights or given away to public agencies and conservation organizations.

In either case, the property, worth an estimated $300 million, would be set aside for wildlife, recreation and other "public" purposes.

The deal would be among the largest, if not the largest, in recent state history. In terms of acreage, it is more than eight times as large as the $100 million Cargill Salt Ponds purchase of San Francisco Bay shoreline and nearly 20 times as big as the government's 1999 acquisition of redwoods in the Headwaters Forest.

Although the PG&E property is spread out, it is also significantly larger than the 82,000-acre Hearst Ranch, whose owners are negotiating to sell its development rights.

"I've never heard of anything on the scale of 140,000 acres being transferred to public ownership or nonprofits or anything else," said Chris Nota, the U.S. Forest Service's regional liaison to California state government.

The deal, announced two weeks ago, is significant for more than just the sheer number of acres, Nota said. The PG&E property is mostly along streams and lakes, the kinds of places people, and wildlife, like to be.

" It's in a lot of people's favorite recreation places," Nota said.

Scattered between Bakersfield and Mount Shasta, the land includes dark canyons and wispy waterfalls, verdant meadows, and a handful of streams bearing salmon and steelhead.

It provides access to Hat Creek, California's best trout-fishing stream and prime mountain boating, fishing, camping and hiking.

Before California's electricity crisis, the state's deregulation policies in 2000 were encouraging PG&E to sell its hydroelectric properties, just as it had already sold its gas-fired power plants.

But an environmental report prepared in November 2000 for the state's Public Utilities Commission found that about two-thirds of the PG&E property might be developed and that 10,000 "dwelling units" like houses, cabins or condominiums could be built. Logging and mining would "likely" be increased.

The report never got beyond the draft stage, and PG&E officials say that even under the company's plan to transfer the property to an affiliate outside PUC control, the land would still be managed with an environmentally sensitive hand.

" This (preserving the property) is something we're willing to do because it's consistent with our historic and current management of the lands," said PG&E spokesman Jon Tremayne.

For PG&E, it is not just responsible management, Tremayne said. It makes good business sense to maintain healthy watersheds, since that ensures there will be less silt in reservoirs and fewer equipment problems in the hydroelectric facilities, he said.

At Spaulding Lake, a reservoir near Emigrant Gap and Interstate 80, PG&E stores water to control the flow of water to generating stations downstream. The lake is a popular recreation spot and a favorite of boaters like Charles Hopper.

A gardener from the Sierra town of Dutch Flat, Hopper unloaded a catamaran he had chopped and narrowed to fit in the back of his small pickup. The lake surface was glassy and the wind was too still for sailing, but Hopper decided to come out anyway.

If PG&E sold this property, recreation fees would probably rise, he speculated. But under PG&E's ownership, Hopper can spend a day on the water for just $3.

" One of the things that's happening is the rich can enjoy these places and the poor can't afford it," said Hopper. "I'm sure in favor of keeping it much as it is."

Conservation groups intervened in the PG&E bankruptcy because the company's reorganization plan would leave the affiliate holding the hydropower assets answerable only to the Federal Energy Regulatory Commission. The affiliate, conservation groups feared, might be less inclined to continue managing the land as it has been. River flows might ramp up and down with wild fluctuations in the price of electricity; trees could be cut and new houses built.

" On some of this property, you could easily see the temptation to subdivide it, develop it and no longer would anglers have access to come and fish on some of California's best streams," said Chuck Bonham, a lawyer for Trout Unlimited.

Bonham, one of two environmental lawyers in the bankruptcy, said PG&E has been able to manage its land well in part because the costs of environmental stewardship were taken into account by state regulators who set the price of electricity from the company's hydroelectric facilities.

Before the bankruptcy settlement is made final, the proposed settlement must be approved by state regulators, PG&E directors and the bankruptcy court.

The highest hurdle appears to be the PUC, where two commissioners have already joined Gov. Gray Davis in criticizing the plan because they say it does not appear to cut rates aggressively enough.

Under the settlement, PG&E ratepayers essentially would bail out the utility. Their electricity rates would fall from artificially high levels by only a half-cent at the end of the year, with another half-cent decrease to follow over the next four years.

State energy officials and PG&E figure that will generate enough money to allow the company to pay the bills, leaving PG&E's hydro- and nuclear-generating properties under state regulation. The associated lands, meanwhile, are set aside.

" I think it's fair to say the (California Resources) Agency has been looking longingly at these lands for many years," said resources secretary Mary Nichols.

Customers of Southern California Edison, meanwhile, are expected to receive a 1.82 cent per kilowatt-hour decrease as early as next month.

Copyright 2003 by Contra Costa Times

Environmentalists hail conservation provision
By Larry Slonaker
Mercury News of 6/21/03

Environmentalists sorting through the details of the PG&E bankruptcy settlement plan were guardedly optimistic Friday, especially about a clause that would protect the company's expansive watershed land.

Under the plan, the utility would assure the conservation of about 140,000 acres of land around its hydroelectric plants, from Mount Shasta to Bakersfield. Part of the mostly mountainous land would be protected through conservation easements; the rest would be donated to public agencies or non-profit conservation groups.

“We think it's very laudable to implement such a systemwide conservation easement approach,” said Chuck Bonham, head of a consortium of recreation and conservation groups that followed the settlement process. “These are some of the crown jewels of the Sierra.”

About 95,000 acres sits near some of the utility's 174 dams. An additional 44,000 acres extends in a wider area around those lands. The remaining amount is a small section in San Luis Obispo County called the Carizzo Plains. None is in the Bay Area.

According to the settlement, the donations and conservation easements would ensure ``a broad range of beneficial public values,'' such as wildlife habitat, open space, outdoor recreation and agriculture. The settlement includes logging in that category.

PG&E assessed the land's value at about $300 million.

Bonham, head of the California Hydropower Reform Coalition and also an attorney for the Washington, D.C.-based Trout Unlimited, said the agreement ultimately would help maintain the state's water quality. “The protection of land means the protection of water that originates in the mountains and descends throughout the state,” he said.

“This matters to the guy who will go out and fish there, as well as the person who lives in Los Angeles who might never go there.”

Under the plan, PG&E also would establish a non-profit group to oversee the land. That group would determine most of the details on usage, including exactly how much land would be donated, and how much would be accessible to the public.

“It's premature to speculate on how the agreement would shake out in terms of access,” said former state legislator Fred Keeley, now head of an environmental lobbying group in Sacramento.

But in general, he added, the settlement is “a very good outcome for the environment.”

Copyright 2003 Mercury News

Plight of the dammed: Critics say PG&E is using its bankruptcy to skirt California's environmental standards
By Michelle Olsen
Sacramento News and Review
February 13, 2003
Photo by Larry Dalton

PG&E's huge hydroelectric system includes 250 dams and diversions. Within a few weeks, a showdown in federal bankruptcy court between energy giant PG&E and California's Public Utility Commission will decide whether the utility can split off its nuclear power plant and shatter its hydroelectric system into numerous limited liability companies.

Critics believe PG&E is using its bankruptcy plan to skirt environmental issues and to self-deregulate. They fear the plan will turn California's rivers into rivulets and drain down reservoirs to maximize its profits from generating hydropower--diverting water through turbines to produce electricity.

By the end of March, the bankruptcy trial is expected to conclude. Judge Dennis Montali will decide whether to approve PG&E's plan, an alternative plan proposed by the CPUC and PG&E's creditors or neither.

This is the largest privately owned hydroelectric system in the United States," said Michael Neville, deputy attorney general for the state of California. He's representing state agencies in opposition to the plan. "It's not your typical run-of-the-mill bankruptcy. We view this as an attempt to deregulate PG&E by using the bankruptcy code. We've seen the mischief that can happen when energy markets are deregulated in a not prudent manner."

PG&E's plan would split the utility into four separate private companies: a gas company, an electric company to transmit power over transmission lines, a distribution company to deliver power to commercial and private customers, and an energy-generation company to produce energy through nuclear and hydropower facilities. The plan calls for the generation company to be divvied up into 26 separate limited liability companies, one for each hydropower project. Diablo Canyon, the nuclear facility, would become part of PG&E's parent company.

If PG&E's plan prevails, regulatory power would be handed over to the Federal Energy Regulatory Commission, cutting the CPUC, and its more stringent environmental standards, out of the loop.

PG&E spokeswoman Jann Taber said the utility is not attempting to dodge state reviews. "We're not seeking to pre-empt current environmental and safety issues," she said.

Taber acknowledged that PG&E's plan wouldn't trigger an evaluation by the California Environmental Quality Act. However, anything else that "we did that required CEQA" would still necessitate a CEQA review, she said.

This lack of a comprehensive environmental review alarms environmentalists and state officials. PG&E's hydroelectric system is huge, containing rivers from Mount Shasta to Bakersfield. Within the system are 250 dams and diversions, 99 reservoirs and 68 powerhouses.

PG&E's plan creates "economic incentives for environmental harm," the state attorney general's office argued in its legal brief, and violates state law prohibiting the transfer of electric generation assets without CPUC approval until 2006.

However, Taber said PG&E believes "the bankruptcy statutes give the bankruptcy court the right to pre-empt state law."

Since declaring bankruptcy nearly two years ago, PG&E has spent more than $40 million in legal fees, said Chuck Bonham, attorney for Trout Unlimited and co-counsel with the Natural Heritage Institute in a related lawsuit. "It's been a pitched battle on every step, every issue," he said. "It's a challenge for a bunch of conservation groups who don't have a $40 million budget."

" There is a David and Goliath aspect," agreed Steve Wald of the California Hydropower Reform Coalition. Wald views PG&E's plan as an entry into the open market for selling its hydro and nuclear power at a rate "many times more than the cost of producing it." For decades, PG&E has been governed by "rate of return regulation," which guarantees repayment of operating costs plus a reasonable profit. Whenever PG&E has taken voluntary measures to mitigate environmental damage, such as upgrading fish ladders for migrating steelhead and salmon or installing "fish friendly" turbines, it has been repaid through CPUC-approved rate increases.

Through its reorganization plan, PG&E is seeking to lift this cap on profits. In doing so, it also will lose the ability to be repaid for environmental improvements.

Informal agreements the utility has made to supply extra water in rivers and dams may fall by the wayside, also. Among these agreements are provisions for whitewater rafting at Chili Bar Dam on the south fork of the American River and for recreation at Bass Lake, south of Yosemite, said Wald. That PG&E "can currently cover costs and make a certain rate of return leaves room for them to do things [like that]," he said.

The regulated company may be a good corporate citizen because it doesn't really cost it anything to be one," said Lee S. Friedman, professor of public policy at UC Berkeley, in testimony in opposition to PG&E's plan. "When profit and the environment conflict, one should not expect the environment to win."But the unregulated generation company proposed by PG&E's plan would have no incentive to continue to operate in a more environmentally friendly manner than required by FERC's minimal standards. It no longer would be able to recoup environmental mitigation expenses, which would come directly out of its profits and result in a loss to shareholders.

The PG&E plan automatically transfers FERC licenses issued decades ago, before legislation was enacted that safeguards the environment, such as the Clean Water Act, the National Environmental Protection Act and Federal Endangered Species Act. Until these licenses expire, they permit operations under rules now considered environmentally damaging.

Long stretches of rivers could be reduced to a trickle, and the companies would still be in compliance with these old FERC licenses. "As a rule, 95 percent of the water [could be] removed during the summer," said Wald.

These proposed limited liability companies could hoard water in the spring, wait for the price to soar in summer months and then release the stored water through power turbines, to generate electricity at peak prices.

This hoarding and spending of water could lead to a host of negative environmental effects, such as increased water temperature, lowered pH, decreased oxygen and growth of algae, all of which affect fish and other aquatic life.

Taber denied that PG&E's plan of reorganization would change procedures. Hydro facilities "will continue to be operated under the FERC-approved licenses that currently exist," she said.

But, unlike the CPUC, which examines multiple hydropower projects in a system-wide overview, FERC regulates each individual hydropower project separately, said Neville, the deputy district attorney for the state.

Without a "comprehensive environmental review," Neville argued, "no one will know if there will be significant environmental impacts with this huge change of corporate structure." PG&E's hydropower system already has "substantially disrupted ... the natural pattern of rainfall, snowmelt and spring accretion on the rivers controlled by this system. The size, health and diversity of fisheries is already fragile," and further disruption "could push these resources beyond critical thresholds," says a lawsuit filed by the Natural Heritage Institute and Trout Unlimited.

State officials and environmentalists fear PG&E's plan will undermine these conditions further. "FERC has the right to set minimum flows. We're not challenging that," said Neville. What concerns him is the "zone of discretion" in how hydroelectric plants may be operated. Though the proposed new company would release enough water to satisfy FERC licenses, it could discontinue informal agreements with fishing groups and lakefront-property owners.

"What's going to happen to these informal agreements that have benefited everyone, including PG&E?" Neville asked. "Economic incentives will change," he said, and PG&E's claims that nothing about its hydropower operations will change are "a guarantee of nothing."

Copyright 2003 by Sacramento News and Review