Klamath Water Users Association
2455 Patterson Street, Suite 3
Klamath Falls, Oregon 97603
541)-883-6100 FAX (541)-883-8893

July 22, 2004

Magalie R. Salas, Secretary
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426

RE: Klamath Hydroelectric Project, FERC No. 2082-027

Dear Ms. Salas:

Pursuant to the notice issued by the Federal Energy Regulatory Commission ("Commission") with respect to the Klamath Hydroelectric Project ("Project") on April 16, 2004, as amended on June 4, 2004, the Klamath Water Users Association ("KWUA") submits for the Commission’s consideration the following comments on the "Scoping Document No. 1" prepared by the Commission in compliance with the National Environmental Policy Act ("NEPA"). KWUA generally supports the license application submitted by PacifiCorp and the NEPA analysis proposed by the Commission provided that the Commission once again requires, as a condition of any new license, that PacifiCorp renew the 1956 Contract (defined below) with substantially similar terms. KWUA does not at this time advocate removing or downsizing all or part of the facilities associated with the Project.

KWUA is a nonprofit corporation comprised of approximately 20 public agencies, most of which are irrigation districts, and many individuals and businesses located in and around the Klamath Irrigation Project. Since 1953, KWUA has represented farmers and ranchers who receive water for irrigation through facilities constructed, owned and administered by the United States Bureau of Reclamation ("Bureau") as part of the Klamath Irrigation Project. KWUA’s members are the lifeblood of virtually every local economy and community within the Project boundary.

KWUA has a substantial interest in the power produced by the Project. Large-scale irrigation is not possible in the Klamath River Basin without a reliable source of both water and low-cost power. The Department of Interior has informed the Commission that "this economy is largely dependent upon low cost power for pumping. Without low cost power, many thousands of acres in the project would be forced out of production." Protest of the United States to the Application For License of the California-Oregon Power Company, Project No. 180, June 1, 1951, P. 4 (Emphasis added). Given the loss of logging as a viable enterprise in the region, the economy of the Klamath River Basin is even more dependent upon low-cost power now than it was when the Project was first licensed and constructed.

In response to the Department of Interior’s protest, the Commission conditioned the original license issued to PacifiCorp for the (now) J.C. Boyle facilities on the renewal of a low-cost power contract in favor of the KWUA members. The Commission ordered that the license be granted:

Order Issuing License (Major) issued for Project No. 2082, January 28, 1954, ¶ A. This condition was satisfied when PacifiCorp negotiated and executed an agreement with the Bureau in 1956 ("1956 Contract"). See Opinion No. 266-A; Supplemental Opinion Amending Order Issuing License, February 23, 1956, p. 2 ("Upon its becoming effective, the new Link Dam agreement will satisfy the requirements of the second proviso of paragraph (A) of the order respecting Project No. 2082 . . ..")

Following the issuance of the original Project license and the execution of the 1956 Contract, Oregon and California agreed that it would be the policy of the states to continue to ensure that there is low-cost power for irrigation in the Klamath River Basin. The Klamath River Basin Compact Between the States of Oregon and California, effective September 11, 1957 ("Klamath Basin Compact"), provides that it shall be the objective of each state "to secure the most economical distribution and use of water and lowest power rates which may be reasonable for irrigation and drainage pumping, including pumping from wells." P. 10 (Emphasis added). The Klamath Basin Compact’s call for the lowest reasonable power rates for pumping was consented to by an act of the United States Congress on August 30, 1957. See 71 Stat. 497; see also Klamath Basin Compact, p. 18-19.

The Commission acknowledged the 1956 Contract on page 10 of Scoping Document No. 1. The Commission explained that:

KWUA takes the position that the 1956 Contract should continue to be a condition on any new license issued for the Project. This position should be reflected in the environmental and economic analysis performed by the Commission in compliance with NEPA.

The Commission’s NEPA analysis should be based on the original Project boundary. Presently, the Department of Interior has the authority to impose mandatory license conditions pursuant to Section 4(e) of the Federal Power Act because the Project boundary includes certain federal lands administered by the Bureau. See 16 USC § 797(e). Scoping Document No. 1 confirms that "[t]he existing project occupies 219 acres of lands of the United States, which are administered by the Bureau of Land Management (BLM) and the Bureau of Reclamation (USBR)." P. 1. PacifiCorp seeks to redraw the Project boundary to eliminate lands administered by the Bureau, however, ostensibly because they will not include generating facilities during the term of the new license. See id. at 16 ("PacifiCorp proposes to modify the existing project by decommissioning the East Side and West Side developments [and] removing the Keno development from the licensed project . . .. These changes would require corresponding adjustments to the existing project boundary.")

Even without generating capability, the East Side, West Side and Keno developments should all remain part of the Project. Although the term "project boundary" is not defined under the Federal Power Act, it is clear that license applications must include a map "enclosing all project works and other features [of the project] that are to be licensed." 18 CFR § 4.41(h)(2) (emphasis added). The term "project works" includes all "physical structures of a project." 16 USC § 796(12) (emphasis added). The term "project" is defined as:

16 USC § 796(11). According to a plain reading of the Federal Power Act, therefore, a project’s boundaries should encompass all components of the project, including water-rights, reservoirs, lands or interest in lands related to the project.

It is clear that a project’s boundaries can include non-generating components of the project. The Commission has stated that "the policy of including lands used for purposes other than power production within a project boundary, even when those lands may be remote from the lands occupied by the power-producing facilities, is an established one." PacifiCorp, 80 FERC ¶ 61,334 (1997). This includes, for example, land used for recreational and environmental purposes related to the project. See id. (finding land necessary for the protection of environmental resources must be included in project boundary); Allegheny Electric Cooperative, 48 FERC ¶ 61,363 (1989) (finding remote recreational land and facilities are within the project boundary); Alabama Power Co. v. Curry, 420 So.2d 48, 50 (1982) (finding recreational sites are included in the definition of "project"). The project boundary can also include land that is required for certain beneficial public purposes. See 80 FERC ¶ 61,334.

As PacifiCorp should know, the fact that the Keno, East Side and West Side developments will not have generating facilities does not mean that they may be eliminated from the Project boundary. See generally PacifiCorp, 80 FERC ¶ 61,334. Keno, for example, is a re-regulating dam that is instrumental in shaping downstream flows. This has broad impacts on power generation, environmental and recreational interests downstream. With respect to East Side and West Side, PacifiCorp has proposed certain decommission activities that could have an impact on water quality, such as the release of sediment or other contaminants. Therefore, there is a beneficial public purpose in the Commission retaining jurisdiction over these facilities at least until such decommissioning work has been completed. The East Side, West Side or Keno facilities continue to affect the environmental or recreational interests of the Klamath River and should remain within the Project boundary. See id.

Furthermore, the Commission should reject any attempt to redraw the Project boundary in a manner that is intended to preclude the Department of Interior from exercising its conditioning authority pursuant to Section 4(e) of the Federal Power Act. In its response to Additional Information Requests, PacifiCorp explains that "[b]ecause PacifiCorp’s proposed Project boundary does not include the lands around the East Side, West Side, and Keno development, Section 4(e) authority would not extend to [Bureau] land that is in the Keno dam area. [The Bureau] does not own any land within the proposed Project boundary." PacifiCorp’s Response to Key Klamath Hydroelectric Project Licensing Issues, June 2, 2004, Attachment A p. 7. As explained herein, however, the Project is closely intertwined operationally, environmentally and economically with the Bureau’s Klamath Irrigation Project. The Department of Interior should not be cut-off from its statutory authority to protect and preserve the Bureau’s pre-existing irrigation project.

In its brief discussion of the 1956 Contract, Scoping Document No. 1 implies that PacifiCorp is no longer getting the benefit of its bargain. The Document reports that the 1956 Contract provides concessions to the Klamath Irrigation Project irrigators in exchange for PacifiCorp having the ability to operate the Link River Dam for the benefit of its hydroelectric production. Scoping Document No. 1, p. 10. The Document then states:

Id. KWUA is concerned that this statement implies that the 1956 Contract is no longer valuable to PacifiCorp.

In reality, PacifiCorp does have operational flexibility with respect to the Link River Dam. KWUA concedes that to the extent that Upper Klamath Lake levels or minimum stream flows are required under the ESA, certain flexibility may be lost. To stretch this into the proposition that PacifiCorp has absolutely no operation flexibility is inaccurate. That would mean, for example, that the flows released from the Link River Dam would never deviate from the ESA-target levels. To the extent that actual Upper Klamath Lake elevations or river flows exceed the minimum ESA-target levels, PacifiCorp still enjoys the ability to shape river flows and optimize its power generation.

In addition to PacifiCorp’s control over the Link River Dam, PacifiCorp’s use of surplus Klamath Irrigation Project water to operate its hydroelectric Project is another important element of the 1956 Contract. The Commission has directly stated that "[t]he benefits received by the United States under the Link Dam Agreement, dated February 24, 1917, as amended, constitute reasonable compensation for the use of surplus water from that Government dam . . .." Order Issuing License (Major) for Project No. 2082, January 28, 1954, ¶ 15. The Link Dam Agreement of 1917 is, of course, the basis for the 1956 Contract. See In the Matter of the California Oregon Power Company; Opinion 266, January 28, 1954, ¶ A (requiring PacifiCorp to renew the 1917 Link Dam Agreement or enter into a new agreement with identical terms.).

In 1905, the Bureau asserted a right under state and federal law, on behalf of the Klamath Irrigation Project, to all unallocated water in the upper Klamath Basin. When PacifiCorp applied for the license now expiring, therefore, the Department of Interior told this Commission that "[i]t is the position of the Interior Department that the United States holds vested rights to substantially all the water unappropriated as of 1905 in the Upper Klamath Basin." Reply Brief of the Secretary of the Interior, October 17, 1952, p. 25. Because it felt that the Klamath Irrigation Project’s water might be threatened by PacifiCorp’s proposed Project, the Department of Interior objected to the original license for the Project.

Id. at 50 (Emphasis added).

It is crucial to understand that the Department of Interior was not simply concerned about the use of surplus Klamath Irrigation Project water in the abstract, but it was specifically concerned about the irrigators’ ability to generate the low-cost power that they need for irrigation. The Department of Interior objected to PacifiCorp’s original license application because of the Department’s fear that the JC Boyles facilities would preclude future hydroelectric development on the Klamath River by the Bureau. The Department of Interior submitted the following protested:

Protest of the United States to the Application for License of the California-Oregon Power Company Project No. 180, June 1, 1951, p. 4 (emphasis added).

As discussed above, in reaction to the Department of Interior’s protest, the Commission imposed a condition on PacifiCorp’s original license that requires PacifiCorp to provide low-cost power to the irrigators for the term of the license. See In the Matter of the California Oregon Power Company; Opinion 266, January 28, 1954, ¶ A. KWUA submits that if PacifiCorp is granted a new license, and PacifiCorp continues to use surplus Klamath Irrigation Project water to operate its hydroelectric Project, then the same conditions and considerations should follow.

Page 30 of Scoping Document No. 1 indicates that the Commission intends to address "[t]he effects of relicensing the project on the socioeconomic conditions of communities influenced by project operations." One of the primary purposes of NEPA is to estimate the effects of an action on the "human environment." See 42 U.S.C.A. § 4332(2)(C). The implementing regulations adopted by the Council on Environmental Quality provide:

40 CFR § 1508.14 (emphasis added; internal parenthetical omitted). The Supreme Court has determined that in some cases this may also include the psychological impact of the action. See generally Metropolitan Edison Co. v. People Against Nuclear Energy, 103 S.Ct 1556 (1983).

The Commission’s statutory obligation under NEPA is to take a "hard-look" at how a 1000% increase in power rates would affect an economy that is largely dependent upon pumped-water and forced-irrigation. The attachments to the 1956 Contract indicate that the KWUA members and other Upper Klamath Basin irrigators currently pay either 6 or 7.5 cents per kilowatt hour, depending on whether they are inside or outside of the Klamath Irrigation Project. PacifiCorp’s current tariff rate for irrigation customers is nearly 57 cents per kilowatt hour in Oregon and over 63 cents per kilowatt hour in California. See generally http://www.pacificorp.com/Article/Article2688.html (listing PacifiCorp’s current Oregon tariffs, pricing schedules and pricing summaries) Additionally, without the 1956 Contract the KWUA members would become liable for demand charges included in the PacifiCorp tariffs that would push their power rates even higher. See id. All told, KWUA members would face an immediate rate increase of approximately one-thousand percent (1000%) if the Commission were to issue a new license without continuing the 1956 Contract.

It hardly bears reporting that a 1000% increase in power rates would have a significant impact on the economy of the entire Klamath River Basin. First and foremost, the irrigators forced to shoulder this price increase stand to lose a significant amount of money. One certain consequence would be that the irrigators would have less money with which to purchase the goods and services provided by other businesses in the region. The price increase could actually force many irrigators to abandon farming altogether. In addition to the severe human and social dislocation caused by forced unemployment, this would likely decrease the value of farmland that would no longer be as profitable, if at all. The decreased value of the farmland would erode the tax base of local cities, counties and school districts. Ultimately, the effects of a 1000% increase on power prices would be felt throughout all aspects of the region’s economy.

In recognition of the potentially devastating consequences of discontinuing the 1956 Contract, the Department of Interior has already called for an assessment of the gravity of the problem. In "PacifiCorp’s Response to Key Klamath Hydroelectric Project Licensing Issues," June 2, 2004, PacifiCorp related the following:

Attachment B, p. 90 (Emphasis added). PacifiCorp’s dismissive response to the Department of Interior’s important study request is wrong on both counts. First, there can be no doubting that the 1956 Contract is, in fact, a condition of the current license. See Order Issuing License (Major) for Project No. 2082, January 28, 1954, ¶ A. Second, the Department of Interior’s study request is clearly within this Commission’s statutory obligation to take a hard-look at the effect of any new license on the human environment. See 42 U.S.C.A. § 4332(2)(C); see also Scoping Document No. 1, p. 30.

If PacifiCorp were issues a new license without a condition requiring renewal of the 1956 Contract, there could be serious environmental consequences in addition to the obvious economic harm that would occur. For example, a 1000% increase in power rates would force many farmers to switch from pumping and sprinkler-irrigation to simple flood irrigation. This flood irrigation would be less efficient and would divert more water than sprinkler-irrigation. Significantly higher power costs would also lead to a decrease in groundwater pumping. Decreased groundwater pumping would also cause increased surface water diversions and, ultimately, less return flows to the Klamath River. Additionally, the higher power rate could lead to the idling of productive farmland that provides important habitat for wildlife, including migrating birds. Unused farmland could also invite invasion by noxious weeds and dust that could impact wildlife and water quality.

A dramatic increase in power costs would also be detrimental to the Klamath Basin Wildlife Refuges. Increased surface diversions and decreased ground water pumping could result in less water being made available to the refuges. The Klamath Basin Wildlife Refuges could also suffer if the Bureau is forced to pay 1000% more for the significant amount of power that is needed to pump water into the refuge complex. It is simply unclear that these refuges could be sustained at current levels if the demands for the water and financial resources of the Basin are further stressed by a 1000% rate increase for electricity.

As part of its NEPA analysis, the Commission should evaluate the environmental consequences as well as the economic consequences specifically related to discontinuing the 1956 Contract.

KWUA supports the identified no-action alternative--continuation of the current license and conditions. Scoping Document No. 1 explains that "[u]nder the no-action alternative, the project would continue to operate under the terms and conditions of the existing license and no new environmental protection, mitigation, or enhancement measures would be implemented. We use this alternative to establish baseline environmental conditions for comparison with other alternatives." P. 24. This alternative is legally permitted. See American Rivers v. Federal Energy Regulatory Commission, 201 F.3d 1186, 1200 (2000) ("In view of this [statutory] regime, the commission logically concluded that the definition of the no action alternative as continued operation of the project under the same terms and conditions as the existing license simply reflects this statutory reality." Internal quotations omitted).

As discussed above, one of the terms and conditions of the existing license is that PacifiCorp is required to enter into an agreement with the Bureau identical to, or substantially similar to, the Link River Dam Agreement of 1917. See Order Issuing License (Major) for Project No. 2082, January 28, 1954, ¶ A. The no-action alternative identified by the Commission would include a continuation of the 1956 Contract. Thus, as part of its NEPA analysis, the Commission shall take into account the environmental and economic consequences of continuing the 1956 Contract as compared to discontinuing the 1956 Contract.

KWUA generally supports the license application submitted by PacifiCorp and the NEPA analysis proposed by the Commission. As discussed herein, the 1956 Contract was made a condition of the original license and should remain a condition of any new license. KWUA submits the forgoing comments to help clarify the Commission’s legal duty to consider the environmental and economic effects of discontinuing the 1956 Contract condition in any new license issued to PacifiCorp.

Sincerely

Dan Keppen
Executive Director