$532M bill for dam removal

PG&E customers face $532M bill for dam removal some don't want

'The true costs of decommissioning will be far greater,' one critic said

By Matt LaFever

Six years after first announcing plans to walk away from the Potter Valley Project, Pacific Gas and Electric Company has finally revealed the staggering price tag for dismantling the century-old hydroelectric facility: $532 million. That’s the estimated cost PG&E submitted to state regulators on May 15, a half-billion-dollar teardown that will be funded by PG&E customers, many of whom also risk losing the year-round water supply the system delivers to 600,000 people across Northern California.

Tony Gigliotti, PG&E’s senior licensing project manager, told SFGATE the half-billion-dollar figure is still a “very high-level estimate,” but it’s meant to reflect the full scope of the task ahead. “We did the best we could with the information we have today,” he said. “We don’t have engineering completed at this point, but that estimate is meant to be all-inclusive.”

“It includes the cost of engineering, permitting, the physical construction — or deconstruction — and then also the restoration and environmental measures that we’ll have to put in place,” Gigliotti explained. “We’ll continue to refine it as we move along in the process.”

The Potter Valley Project, built in 1908, radically altered Northern California’s water system by diverting Eel River flows to the Russian River through a milelong tunnel. Anchored by Cape Horn Dam and Scott Dam (which created Lake Pillsbury), the project has long been considered a lifeline by farmers and ranchers in Mendocino, Sonoma and Marin counties. Even though the powerhouse shut down in 2021, the system still delivers water year-round.

Now, with the Potter Valley Project slated for removal, a replacement is already on the drawing board. The New Eel-Russian Facility, led by the Eel-Russian Project Authority, commonly referred to as ERPA, would be built near Cape Horn Dam to keep water flowing while restoring the Eel River’s natural processes. The proposal includes upgraded infrastructure and modern fish passages to serve both ecological and human needs, according to ERPA.

But that vision comes with a price tag of its own. Stuart Tiffen, a spokesperson for the Sonoma County Water Agency, told SFGATE in an email that the current construction estimate for the New Eel-Russian Facility is around $50 million. That number comes from a 2024 engineering report, but with designs only 30% to 60% complete, the final cost could rise.

As for how the project will be funded, ERPA is considering a mix of state and federal grants, local agency contributions and, critically, cost-sharing among what Tiffen called “project beneficiaries.” When SFGATE asked specifically if that would include Russian River water users, Tiffen acknowledged that it would, meaning the 600,000 people who rely on these diversions for drinking water and agriculture could end up footing part of the bill.

Unlike the consistent diversions from the Potter Valley Project that have fueled the Russian River’s agriculture for more than a century, the New Eel-Russian Facility would halt transfers from mid-spring through summer when the Eel River’s water levels are too low. A draft memo warns that this could mean sharp cutbacks for downstream users, which would likely jeopardize crops, ranching and everyday faucets.

Carol Cinquini, the vice president of the Lake Pillsbury Alliance, which represents homeowners along the reservoir and advocates for retaining the Potter Valley Project, called PG&E’s cost estimate “only the beginning.”

“The true costs of decommissioning will be far greater than PG&E’s estimated half a billion plus to remove the Eel River dams,” Cinquini told SFGATE via email. “There will be substantial costs to construct new water infrastructure and new water storage to meet the needs of the 650,000 downstream water dependents, and millions in annual costs for continued water diversions and restoration. The cumulative costs are likely to exceed $2 billion ... and the taxpayers and PG&E ratepayers will be on the hook for it.”

PG&E insists that tearing down the Potter Valley Project is still the cheaper option. “The decommissioning of the project at the end of the day still costs our customers less than to continue to own and operate the project,” said Janet Walther, the utility’s director of licensing and compliance. When SFGATE asked whether the public perception that customers will foot the bill was accurate, Walther said “yes,” explaining that the decommissioning costs were included in the utility’s General Rate Case. 

Additionally, PG&E is asking regulators for permission to dip into its hydroelectric decommissioning fund, a pool of ratepayer money the utility sets aside specifically for retiring hydroelectric projects, to help cover the $532 million price tag. The idea, as Walther put it, is “so that the customers who had the benefit of the generation and the hydro facility at the time are also the same customers that are, in the long term, paying for a potential future decommissioning.”

When SFGATE asked to see the financial analysis that led PG&E to conclude it was cheaper to tear down the Potter Valley Project than continue its operation, Walther said, “That level of economic analysis is not something that we put out in the public.”

Despite public outcry, Walther said PG&E didn’t simply walk away from the Potter Valley Project. After announcing in 2019 that it would not pursue a new license for the facility with the Federal Energy Regulatory Commission, PG&E tried to sell it.

“We tried to divest it on the open market,” Walther said. “Nobody stepped forward.”

With no buyer, the commission ordered PG&E to develop a formal surrender plan, a draft of which was released Jan. 31, 2025. The final plan is expected to be submitted this July.

PG&E admits tearing down the Potter Valley Project could rattle the Russian River watershed. In its draft plan, the utility warns of “unavoidable adverse impacts” to water reliability, farming and recreation once diversions stop flowing into the east branch.

Dave Canny, PG&E’s North Coast vice president, told SFGATE the company is working with the Eel-Russian Project Authority to soften the blow of decommissioning. That includes repurposing parts of the existing system and taking a gradual approach to dismantling. “We want to do right by the people delivering water downstream,” he said, emphasizing PG&E’s careful coordination with local agencies.

Regardless of PG&E’s slow march toward dismantlement, Cinquini believes the battle isn’t over. The utility may have filed its surrender, but she sees room for resistance and a better future. “With political will,” she said, “the question of ownership could be figured out.”