Pacific Gas and Electric (PG&E) applied April 1 at the California Public Utilities Commission for approval to sell the Merced Falls Hydroelectric Project to the Merced Irrigation District (MID), with that application still pending as of April 21.
The Merced Falls facility is located on the Merced River on the border of Merced and Mariposa counties, California. It generally consists of a 3.5-MW hydroelectric powerhouse presently generating approximately 14.4 gigawatt hours (GWh) per year, a 575-foot long by 34-foot high concrete gravity dam containing three radial gates, a 65- acre reservoir with approximately 900 acre-feet of storage, related equipment, approximately 20.5 acres of land, Federal Energy Regulatory Commission license, easements, and water rights. It is operated as a base-load run-of-the-river facility. The existing generating unit was installed in 1930, and the project has been providing electric service for the last 85 years.
MID provides irrigation water for agricultural purposes and local flood control. Additionally, MID is a local publicly-owned utility providing non-exclusive electric service to retail customers in eastern Merced County. The Merced Falls facility is immediately downstream from MID’s Merced River Hydroelectric Project, and is approximately three river miles upstream from MID’s Crocker-Huffman Diversion Dam. While PG&E owns the Merced Falls facility, MID operates it on behalf and at the direction of PG&E.
PG&E said in the application that it and MID have periodically discussed the potential for a sale of the project over the last five years. Recently, through arm’s length negotiations, the parties agreed to a sale price of $850,000. MID will pay $50,000 at execution of the agreement and pay the remaining balance at closing.
There are a couple of key reasons why PG&E pursued a sale of the project to MID. First, there are logistical challenges associated with owning and operating the project. It is geographically isolated from PG&E’s other hydroelectric operations, and PG&E currently has no full-time hydro operations personnel stationed at or near the project. Additionally, based on current operating costs and expected new license conditions, compared to the value of the generation from the project, it is not cost-effective for PG&E’s customers if PG&E continues to own and operate it. Based on a 20-year net present value economic analysis, the option of selling the project is anticipated to save PG&E customers about $3.25 million compared to continuing to own and operate the facility over the same time period.
From MID’s perspective, purchase of the project makes sense. It already operates the project and also owns a hydroelectric plant immediately upstream and a dam three miles downstream from it. Also, MID owns an irrigation canal that diverts water directly from the project impoundment. The sale will provide MID with integrated control of several facilities located along the Merced River, as well as the opportunity to utilize project generation at a valuation that may exceed PG&E’s valuation.