A Brief History of LEAPS
Action you can take to help stop LEAPS
Why LEAPS is not economically viable
What credible persons and agencies say
Lies, Inaccuracies, and Misleading Statements
LEAPS is the abbreviation for Lake Elsinore Advanced Pumped Storage Project. The Project includes both a hydroelectric pump/storage power plant and associated high voltage power transmission lines to connect the power plant to the high voltage grid in California.
All pump/storage power plants require a large body of water, like Lake Elsinore, and nearby mountains where a relatively large reservoir exists or can be built. In the case of the LEAPS Project, the plan is to build a new reservoir in the mountains west of Lake Elsinore. The reservoir would have a surface area of approximately 100 acres and it would be formed in a natural canyon by constructing a 180-foot high dam. The lake and reservoir would be interconnected by one or two large pipes 12 to 20 feet in diameter.
There would be very large rotating impellers in the pipes that would be electrically energized by large motor/generators. When the cost of electricity on the grid is low, typically during the night, the motor/generators would operate as motors to rotate the impellers and pump approximately 10% of Lake Elsinore’s water up the mountain and into the reservoir. Then, during hours of peak electricity demand (when the price of electricity is high), the water in the reservoir would be flushed back down the pipes into the lake causing the impellers to rotate and their associated motor/generators would operate as generators to produce electricity that can be delivered back to the grid.
The economic viability of such a power plant depends on two principal factors (1) the differential cost of electricity during peak and low demand periods and (2) the cost to construct the power plant.
The economic viability of the LEAPS power plant by itself does not appear to be favorable. The Federal Energy Regulatory Commission (FERC) has estimated that if this power plant were built, it would cost the California ratepayers an additional $120 million per year on their electricity bills to operate it. (see The Nitty-Gritty of the LEAPS’ Eonomics.)
A picture of the LEAPS Project (see What is LEAPS?) has been prepared by the opponents of the Project to highlight its principle problems and risks.
Nevertheless, this picture is helpful to visualize the geographic scope of the Project.The most complete description of the entire Project is found in a 500 + page Environmental Impact Statement for Hydropower License: Lake Elsinore Advanced Pumped Storage Project (FERC Project No. 11858) dated January 31, 2007. This document is available under references and on the Federal Energy Regulatory Commission’s (FERC’s) web site www.ferc.gov in their “e-Library”. There the Federal Government estimates the total Project construction cost to be $1.3 billion.
This Project was conceived by the Elsinore Valley Municipal Water District (EVMWD) in 1988 as a way to produce a modest amount of electrical power during times of peak usage and, more importantly, to implement a strategy to stabilize the water level in the lake. The concept for stabilization was straightforward. Operation of a hydroelectric power plant would require some minimum level of water in the lake and the owners of this plant would have the incentive to pay the price necessary to maintain the level in periods of drought.
The initial plans were for only a 240 Megawatt power plant and a direct high voltage power line running to the north to connect to the electrical grid managed by Southern California Edison. The power line was to be sized to match the power plant’s output.
Over the years, the planned output of the power plant has been increased to the present rating of 500 Megawatts (to achieve a more favorable economy of scale) and the planned power lines have been extended both north and south of the power plant running approximately 30 miles through the Cleveland National Forest. The power lines are now sized to transmit 1,600 Megawatts of power. Thus, in its present embodiment, the power lines would have over three times the maximum output capacity rating of the power plant. As such, the power lines have evolved from a simple connection of the power plant to the grid into becoming a major power transmission artery between San Diego Gas & Electric in the south and Southern California Edison in the north.
Opponents of the LEAPS Project say that if the power plant is not economically viable it should not be built. That would leave just the power lines though the Cleveland National Forest. And the opponents go on to say that if the power plant is not built on the edge of the Forest, there is no further justification for running power lines through the Cleveland National Forest.
There are numerous alternate paths for north-south running power lines that do not require encroachment on the Forest. In fact, San Diego Gas & Electric made a specific proposal for such a power line to the California Public Utilities Commission (CPUC) in 2001 and again in 2003. However, their proposal was denied by the CPUC for not being in the best interest of the ratepayers.
Supporters of the LEAPS Project contend that the overall Project is economically viable and it should be built. Opponents point out that FERC has stated in a letter dated October 2, 2006 (see FERC letter) that no pump/storage hydroelectric projects have been built during the past 20 years in the United States even though 5 licenses were granted. The reason that the licensed plants were not built was lack of sufficient investor interest. This is the ultimate test of economic viability.
So long as LEAPS remains a hydroelectric project, it can sidestep the CPUC licensing process and be licensed directly by the Federal Government (FERC). It is generally believed that the Federal Government is more favorably inclined to grant licenses than the CPUC. However, concern over the possible lack of economic viability of the pump/storage power plant raises serious questions as to the appropriate venue for licensing this Project. That’s because the only economically viable aspect of the LEAPS Project appears to be the power lines.
THE RELATIONSHIP BETWEEN EVMWD AND NEVADA HYDRO
As mentioned above, the LEAPS Project was conceived by the EVMWD in 1988. By 1997, the EVMWD had completed preliminary studies and concluded that it would be worthwhile to proceed. However, it was recognized that the construction cost would be hundreds of millions of dollars. At that time, EVMWD did not believe that it would be in the best interest of their ratepayers to carry the burden of such an extraordinary expense. So, EVMWD solicited proposals from private companies to take on all of the financial and management responsibilities associated with the project.The only company that responded was a newly formed entity named The Hydro Company. On May 15, 1997, EVMWD and The Hydro Company both signed a Development Agreement for the LEAPS Project. This signing occurred less than three months after The Hydro Company was incorporated in the State of Nevada. Shortly thereafter, the Hydro Company filed to do business in the California as The Nevada Hydro Company (see Who is Nevada Hydro?)
One of the key objectives of the Development Agreement was included in the Recitals:
WHEREAS, District (EVMWD) and Company (The Hydro Company) have agreed it is mutually beneficial to enter into this Agreement to allow the Project to proceed with minimal additional expenditure of public funds and without delay in the FERC License application and in the construction and operation of the Project.
The Agreement was signed by then President of the Board, Ben Wicke, representing EVMWD, President H. L. Mitchell, representing The Hydro Company and by John E. Brown, Legal Counsel for EVMWD. These names are mentioned because all three individuals have subsequently influenced the LEAPS Project in various ways, and each will be discussed in the following.
First, ten years after, Ben Wicke signed the Development Agreement, he is, once again President of the EVMWD’s Board. He was re-elected in 2006 after accepting substantial campaign contributions from Nevada Hydro, as reported in the press (Valley News and The Californian). He told the press that he had no idea that the campaign money he accepted had come from Nevada Hydro after being “laundered” by a political action committee. Wicke remains a strong advocate of the LEAPS Project and a loyal supporter of Nevada Hydro.
This Development Agreement, which has no termination date, has remained in effect up to the present. During 2006, the EVMWD Board of Directors informed the public that the old Agreement was so out of date that there was concern about its continued applicability and that a new Agreement with Nevada Hydro was being negotiated. However, on November 22, 2006, Ron Young, the General Manager of EVMWD notified FERC in a letter that the negotiations with Nevada Hydro had reached an impasse. Thus, the original Development Agreement continues to stand, but on shaky footing.
In broad terms, this Agreement assigns to The Hydro Company the responsibilities of acquiring the FERC license, securing investors to construct the Project and to operate it after it is completed. Both EVMWD and Nevada Hydro are the co-applicants for the FERC license. However, it is clear that Nevada Hydro is an active participant in the Project to make a financial gain while EVMWD’s interest is to stabilize the level of Lake Elsinore.
In 1999, the Development Agreement came close to falling apart as the principals in Nevada Hydro were engaged in cross lawsuits. The episode was reported in an article titled Criminal probe faces hydro plant planner in the March 6, 1999 issue of The Press-Enterprise, a local newspaper.
The criminal probe led to the departure of H. L. Mitchell from The Hydro Company. Recall, that he was the one who signed the 1997 Agreement.
Shortly after the criminal probe was resolved, Nevada Hydro brought Enron Corporation in as their partner in the LEAPS Project. This arrangement was approved by EVMWD. However, by 2001, Enron’s legal problems were mounting and they withdrew from the Project.
Many, who opposed the LEAPS Project thought that it was “dead” after ENRON had withdrawn. But, Nevada Hydro and EVMWD continued to quietly move forward in a most unusual and suspect fashion that some say may have been both unethical and illegal.
All the subsequent meetings between EVMWD and Nevada Hydro were conducted as ad hoc meetings with no more than two of the five EVMWD Directors in attendance. This allowed the Project to proceed without public scrutiny. The results of the ad hoc meetings were shared with the other Directors who supported the LEAPS Project. But then Director Chris Hyland, who opposed the Project, and the public were left in the dark.
This shady practice continued until the new EVMWD Board of Directors was installed early in 2007. At that time, the Ad Hoc LEAPS Committee was disbanded. However, to date, the public has been kept away from finding out any significant details about the LEAPS Project or the strained relationship between EVMWD and Nevada Hydro because all Board meetings that concern LEAPS have been held in “closed sessions”. The stated justification for this is the possibility of a potential lawsuit between EVMWD and Nevada Hydro.
Many of the opponents of the LEAPS Project have protested to the EVMWD Board about the ad hoc meetings subverting the intent of the Brown Act, which requires public access. While they recognized that it may have been useful and acceptable to have ad hoc meetings for a limited duration to resolve a specific problem, they feel that stringing out such meetings for five years was excessive and an abuse of the Board’s authority. The current attorney for EVMWD, John Brown (who also signed the 1997 Agreement), has countered that the Brown Act sets no specific limits on the
duration of ad hoc meetings. His actions suggest that he is more inclined to protect the interests of the Board members than the public intersts.Regardless of which side of this argument is correct, it’s clear that the secret ad hoc meetings and now the “closed sessions” have effectively eliminated public oversight.
Behind the veil of secrecy, EVMWD started to loan Nevada Hydro substantial amounts of money for undisclosed purposes. During the period between the beginning of 2001 and June 30, 2006, the unpaid balance of loans from EVMWD to Nevada Hydro was $1,354,905.96, as documented. The loans invoiced during just the first half of 2006 totaled $427,815.36. It is believed that the loans have continued to the present and that total amount now exceeds $3 million. Further, there can be no assurance that the loans will ever be repaid because the 1997 Agreement with Nevada Hydro only requires repayment if the LEAPS Project is actually financed and built.
Making such loans by EVMWD seems to subvert the intent of the Development Agreement. Recall that it was entered into by EVMWD to proceed with minimal additional expenditure of public funds. Yet, in recent years over $3 million of public funds has been put at risk by EVMWD. This includes substantial funds spent in the fall and winter of 2006-2007 to pay for a television ad series that promoted the LEAPS Project to the general public.An example of this questionable loan practice is a typical loan invoice made by EVMWD and dated June 15, 2006. It contains no information for how the $137,197.91invoiced amount was used. Thus, the public has been denied the ability to meaningfully review the financial aspects of the LEAPS Project. Further, EVMWD has continued to be unresponsive to repeated requests made by the public and by ex-Director Chris Hyland (who opposes the LEAPS Project) for more detailed information to support the loans made to Nevada Hydro.
There is a serious concern that public money loaned by EVMWD to Nevada Hydro may have been included in the money laundered by Nevada Hydro to support the election of Directors who are favorably inclined to support the LEAPS Project and Nevada Hydro. “Buying” Directors in this way would be a serious violation of California laws. But, at present there is no proof that this has been done. However, suspicion remains high, in view of the fact that Nevada Hydro does not seem to have any other business interests besides LEAPS that could bring in revenues to support the campaign contributions.
RECENT DEVELOPMENTS
On April 16, 2007 the Board of Governors of the California Independent Systems Operator (CAISO) held a meeting open to the public about the LEAPS Project. One of the Governors asked a representative of Nevada Hydro if the LEAPS hydroelectric power plant would be economically viable as a merchant generator. Nevada Hydro gave a negative response to that question.
This is the first time that Nevada Hydro has admitted that the LEAPS power plant would not be economically viable. But viability was not necessary because Nevada Hydro had been pressing for a favorable ruling from the CAISO that the cost for LEAPS should be added to the Transmission Access Charges that are paid by all California electrical ratepayers on their monthly bills. At that meeting, the CAISO’s Board of Governors denied Nevada Hydro’s request, saying that
Allowing TNHC [Nevada Hydro] to recover the costs of the facilities that provide these services via a guaranteed recovery in the TAC [Transmission Access Charges] while other providers of these services must face the risks of recovering their costs in the market is unduly discriminatory and inconsistent with fundamental market principles.
This position and the admission by Nevada Hydro that the hydroelectric power plant is not economically viable has sealed the fate of the LEAPS hydroelectric power plant unless some future Government rescue attempt is made.
However, the power lines initially associated with the overall LEAPS Project have taken on a life of their own. Nevada Hydro is keen on building them while EVMWD’s public position is that they are not supportive of the power lines without the hydroelectric power plant. It’s generally believed that this difference is part of the reason for the current impasse between EVMWD and Nevada Hydro in revising the old Development Agreement.
The final chapter for LEAPS is likely to focus on the whether the power lines should be built. There are strong forces on both sides of this issue that are gearing up for action. The opponents cite the extreme fire hazard that aerial power lines would create not only in the Cleveland National Forest but also in nearby communities, the loss of nearby property values and concerns for negative health effects caused by the electromagnetic radiation emitted from the power lines. On the other hand, the proponents are driven not only by economic gains but also by their stated desire to make the electrical power grid more robust to potential black-outs caused by equipment failures or even by terrorists’ activities.
Since alternate pathways exist for the power lines, like the one mentioned above that was proposed by San Diego Gas & Electric in 2001 and 2003, the decision for exactly where to build an interconnect power line between SDG&E in the south and Southern California Edison (SCE) in the north depends on a complex balance of raw political power, substantial amounts of money, and risk to human life.
To make matters even more complex, serious questions have been raised as to the need for any such interconnect in view of other major power projects started after LEAPS that will supply both SDG&E and SCE with substantial amounts of power from the east. These include the Sunrise Power Project supported by SDG&E and a major multi-state effort to import power from coal fired power plants located in states east of California that have plentiful coal deposits.