The Economic Benefits of Removing the Potter Valley Project Dams

Introduction and Summary Findings

The Potter Valley Project is a hydroelectric facility constructed in the upper Eel River watershed approximately 20 miles northeast of Ukiah. The Project owner, Pacific Gas and Electric (PG&E), is currently working to surrender its federal license to operate the Project and decommission the facilities. PG&E has noted that the Project is uneconomic for their ratepayers as their reason for divesting from it. It is estimated that PG&E loses an average of $5-10 million per year on Project operations. Prior to moving to surrender its license for the Project, PG&E attempted to auction the facilities, but was unable to find a suitable buyer. Additionally, the facilities lack modern fish passage mechanisms, generate very little electricity by modern standards and would likely be prohibitively expensive to retrofit.

PG&E is currently deciding how to decommission the Project. Two key elements that they must face are how to comply with state and federal environmental laws, and how to limit their liability for any long term or ongoing costs associated with the Project footprint. 

The Potter Valley Project consists of two 100-year-old dams – Scott Dam and Cape Horn Dam, a diversion tunnel, penstocks and a powerhouse located in the East Branch of the Russian River. The Project functions as a trans-basin diversion, moving water from the Eel River into the East Branch of the Russian River. Scott Dam, the upper dam, has no fish passage facility and blocks 288 miles of potential spawning and rearing habitat for the Eel River’s salmon and steelhead populations, both of which are listed as threatened under the Endangered Species Act. Cape Horn Dam, located 12 miles downstream from Scott Dam, has inadequate fish passage facilities, which will likely require costly upgrades to meet environmental standards. The power generation facility is currently inoperable due to an equipment failure. The Project is also under scrutiny for diverting Eel River water, which represents an adjudicated water right for the Round Valley Indian Tribes. In 2018, Congressman Jared Huffman convened a diverse set of stakeholders in a collaborative process that sought to explore terms for the future of the Potter Valley Project. This effort, dubbed the Two-Basin Solution, sought to reduce conflict between stakeholders and work toward a compromise solution that would benefit both the Russian River and the Eel River watersheds. 

Five of the participants of the Congressman’s stakeholder group – Round Valley Indian Tribes, Humboldt County, Mendocino County Inland Water and Power Commission, Sonoma County Water Agency, and California Trout – then commissioned several studies exploring various alternatives and their estimated costs. Information from the group’s alternatives analysis narrowed their efforts to acquiring key components of the Potter Valley Project from PG&E and modifying them to function as a water diversion-only facility, including estimating the cost of modifications and operations and additional analysis on removing both Scott Dam and Cape Horn Dam. 

While negotiations surrounding the fate of the Potter Valley Project continue, this report seeks to provide an understanding of the economic impacts associated with one likely result of the decommissioning process: that PG&E will remove both Scott and Cape Horn Dams. This outcome is likely due to the reasonable initial capital outlay and the minimal long-term operation and maintenance costs associated with dam removal relative to long-term operations and maintenance costs coupled with ongoing state and federal liabilities surrounding fish passage, environmental compliance, and dam safety without a continued revenue source. 

Dam removal entails dismantling the dams either completely (in the case of Scott Dam) or through modifications such as lowering (in the case of Cape Horn Dam). In both instances, fish passage would be dramatically improved compared to the status quo, significantly increasing the quantity and quality of fish habitat in the Eel River. Removal of both dams and the modernization of associated watershed infrastructure will also benefit residents, visitors, and Tribes who depend on the Eel River and Russian River for water supplies, flood protection, and recreation.

The chart below summarizes the potential economic impacts of the combined dam removal projects in the State of California, as analyzed within this report.

In total, feasibility studies show between $133 million and $185 million will need to be invested to remove Scott Dam and Cape Horn Dam. These investments will yield an economic multiplier of 1.88x across California, and they will support a total of 9.0 jobs for every million dollars spent. Key results of the analysis include the following:

The dam removal projects would support 1,223 to1,637 full-time equivalent job-years in the State ofCalifornia, 1,037 to 1,332 of which would be withinthe five-county Northern California area of study.

In addition to jobs, the dam removal and riverrestoration projects would provide an estimated$252 million to $345 million in total economic outputfor California, $203 million to $278 million of whichwould stay in the five-county region of study.

The economic output figure indicates the total value of transactions that are generated as a result of one dollar of initial expenditure. The multiplier effect grows as the geography studied gets larger—this pattern is typical as larger geographies have less spending leakage to other surrounding areas. As a state with a diverse set of industries and a large labor pool, the California model has very limited immediate leakage to other states. The model assumes that all of the project’s initial capital and labor inputs come from within California.



Read the Report (PDF)


Read the two-pager summary (PDF)