PacifiCorp disputes California Energy Commission’s Klamath model and report

KLAMATH FALLS, Ore. – An independent review and assessment of a California Energy Commission report issued Dec. 1, 2006, identifies several flaws in the agency’s study and conclusions about the long-term customer costs of removing PacifiCorp’s Klamath River dams compared with the costs of relicensing the project and building fishways.

"We want good science, and we want good economic analysis; in fact, we can only make decisions based on these hard facts," said PacifiCorp Energy president Bill Fehrman. "It appears that the data the CEC currently has is lacking on both counts."

Christensen Associates Energy Consulting LLC, an independent energy consulting firm based in Madison, Wis., reviewed the CEC’s model and results. It determined that the report’s core finding, that dam removal is less expensive for PacifiCorp’s customers than building fishways, is suspect as a result of numerous flaws in the financial model, including assumptions used to evaluate future energy costs.

CA Energy Consulting’s evaluation found that the CEC’s model is riddled with errors in the inputs, methodology and key assumptions, and that these errors inappropriately bias the results of the model toward decommissioning. Overall, the study is so flawed that CA Energy Consulting was left to conclude that the CEC model, which formed the basis of the report and its conclusions, was not capable of providing an adequate economic assessment of whether the Klamath Project should be relicensed.

"Our view is that the data the CEC used to reach its conclusions failed to account for basic and truly unavoidable costs," said Fehrman. "To make a decision of this magnitude, with the size of the stakes involved, everyone should agree to the basic costs, how much more customers will have to pay for replacement power, what the environmental risks are and how they will be mitigated. These are basic things that were not covered in the CEC study, and we are very concerned about that."

The CEC report has been made part of the record in the relicensing proceeding before the Federal Energy Regulatory Commission and is often cited as support by dam removal advocates.

"Removal of a project the size of Klamath would be unprecedented in North America and, to our knowledge, in the world," said Fehrman. "This is complex. It’s not a simple matter of removing some concrete slabs. This is low-cost power now used by our customers with virtually zero emissions. Taking the dams out will certainly cost money. Replacing the power will necessarily cost our customers more money, and potentially a lot more money.

"Removing the dams could create a much greater environmental impact to the basin and could result in adding combustion emissions to the environment. There are also 20-25 million cubic yards of sediment behind the Klamath dams that are not addressed in the CEC’s study. Oregonians and Californians can understand if we are circumspect about making sure all details are included and considered before we agree with conclusions that dam removal will work out best for everyone involved," Fehrman added.

Key problems with the report include errors and inconsistencies in the pricing of replacement power, failure to include future carbon emission taxes as part of replacement energy costs, and an inappropriate discount rate for financing.

CA Energy Consulting is a respected firm used by the energy industry to examine economic factors pertaining to complex energy issues. The CEC has itself retained the firm in the past for other economic analyses.

"We are trying to be practical and reasonable about the future of our Klamath Hydro Project," said Fehrman. "Any outcome, including dam removal, could work for us as long as our customers’ interests are addressed. Meaningful discussions with dam removal advocates must address the risks facing our customers if the dams are removed. As an alternative to dam removal, we believe it makes sense to invest an estimated $300 million in fish passage measures to protect fish and still have a hydro project that continues to produce emissions-free electricity for our customers. The CEC report is clearly not an appropriate tool to help us and other interested stakeholders make any of these very difficult decisions."