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CASE STUDY #9 the TERROR LAKE CASE1 Background Kodiak Island

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CASE STUDY #9 the TERROR LAKE CASE1 Background Kodiak Island CASE STUDY #9 THE TERROR LAKE CASE1 Background Kodiak Island lies several hundred miles southwest of Anchorage in the Gulf of Alaska. Blanketed in forests and laced with free-flowing rivers, the area provides prime habitat for the Kodiak brown bear, (Ursus arctos middendorffi), bald eagles, mountain goats, Pacific salmon, and other Arctic species. Much of the island falls within the bounds of the Kodiak National Wildlife Refuge, which was established by executive order in 1941 to protect the feeding and breeding grounds for the Kodiak brown bear and other native species.2 Since then, the boundaries have been altered, but the refuge still encompasses more than two-thirds of the island. Despite its proximity to Anchorage, the island is fairly inaccessible and sparsely populated with somewhere between 5,000 and 7,000 residents, most of whom live in the town of Kodiak. The local economy is based almost entirely on the fishing industry and supports roughly a dozen cannery operations year-round.3 The refuge with its bears and the local residents with their canneries peacefully coexisted until the early 1970s when, faced with rising diesel fuel costs and projected increases in energy demand, the Kodiak Electric Association (KEA) decided to build a 30,000 kilowatt hydroelectric facility on lands within and immediately adjacent to the refuge. In 1976 the Federal Energy Regulatory Commission (FERC) granted the small, rural electric cooperative a preliminary permit to develop the site, which included Terror Lake and Terror River, both of which are within refuge boundaries. The project was to consist of a dam at Terror Lake, which would raise the water level nearly 150 feet and flood 480 acres, a powerhouse located in the Kizhuyak River Basin adjacent to the refuge, and a diversion tunnel connecting the reservoir and powerhouse. Two 10,000 Kilowatt generators would be housed in the powerhouse with room for installation of a third. Water diversion resulting from the project would increase streamflow 5 percent in the Terror River and 300 percent in the Kizhuyak River during the winter months.4 KEA's interest in developing the site was not new. In 1964, KEA applied for and received a permit from FERC (then FPC), which expired before KEA could secure financing. However, by 1976 the nation's energy outlook and KEA's financial situation had changed, making development of the site more attractive. But the real catalyst for negotiation was the dramatic shift in the national political climate following Reagan's successful 1980 presidential 1This case study was developed by Harlin Savage. 2Olive, Stewart W. and Lamb, Berton L. Conducting A FERC Environmental Assessment: A Case Study and Recommendations from the Terror Lake Project, U. S. Fish and Wildlife Service, Fort Collins, CO. April 1984. 3Telephone interview with Keith Bayha, USFWS Regional Office, Anchorage, AK. March 1991. 4Oliver, Stewart W. and Lamb, Berton L. Conducting A FERC Environmental Assessment: A Case Study and Recommendations from the Terror Lake Project. Source: Steven L. Yaffee and Julia M. Wondolleck, Negotiating Survival: An Assessment of the Potential Use of Alternative Dispute Resolution Techniques for Resolving Conflicts Between Endangered Species and Development (Ann Arbor, MI: School of Natural Resources and Environment, The University of Michigan, September 1994), a report prepared for the Administrative Conference of the United States. Terror Lake Case #9 - 2 bid. The project had the determined backing of Reagan's Interior Secretary James Watt and Assistant Secretary William Horn as well as Alaska's congressional delegation. While KEA, the Alaska Department of Natural Resources (ADNR) and the Department of Fish and Game (ADFG), the U.S. Fish and Wildlife Service Regional Office (USFWS), and the Department of the Interior had been battling over the proposed development since 1976, intense pressure from higher-ups in Washington to find "an Alaskan solution" changed the dispute's dynamics and created a strong incentive to settle. It also gave the national environmental groups, who had not been heavily involved until then, reason to participate. The parties reached agreement on June 26, 1981 five years after FERC granted KEA's request for a preliminary permit. The Parties 1. The Kodiak Electric Association (KEA) wanted a cheaper way to meet electricity demand. The fishing industry was flourishing in the mid-1970s and local canneries, which are energy-intensive operations, were planning to expand. Recognizing that the USFWS and environmental groups, both of whom officially "intervened" in the FERC licensing process, could force an administrative hearing and delay the project for up to two years, KEA aggressively pursued negotiations. David Nease, who serves as an executive manager for KEA and represented the company in the negotiations, estimated that it would have cost KEA $1 million for every month the project was delayed. 2. The U.S. Fish and Wildlife Service's Regional Office initially opposed the project for several reasons. First, staff feared that allowing major hydroelectric development in a National Wildlife Refuge would set a dangerous precedent. Second, the agency was concerned that its jurisdictional claim to refuge lands was being challenged. And finally, the agency was concerned that the project would spoil potential wilderness areas. The USFWS had recommended that Congress set aside 97 percent of the refuge as wilderness. However, because the Reagan Administration supported the project, the regional office was forced to reverse its position. The USFWS' objective then shifted to ensuring adequate mitigation. After the political climate changed, Keith Schreiner, Director of the Regional Office, took the issue away from the Refuges Division staff and handed it over to Keith Bayha, the Assistant Regional Director for the Environment. Bayha, who represented the USFWS in negotiations, had a more favorable view of the project and was, at the time, a relative newcomer to the regional office staff. 3. The State of Alaska supported the project wholeheartedly. The State Legislature wanted to promote hydroelectric development in Alaska and was ready to provide funding to support projects. The state's congressional delegation, especially Rep. Don Young, strongly supported the project too. However, the state agencies were the only ones Terror Lake Case #9 - 3 directly involved in the negotiation. The Alaska Department of Fish and Game supported the project and wanted to ensure that the Kodiak brown bear and the fishery resources would be protected. The Alaska Department of Natural Resources also supported the project and believed that Kodiak needed the project. However, the ADNR does not appear to have been heavily involved until it became clear that a negotiated settlement would affect state-owned lands. 4. The Sierra Club, the National Audubon Society and the National Wildlife Federation were the major environmental groups involved. These groups did not intervene in the process because they believed the USFWS would protect the refuge. The alternative, according to Jack Hession, staff member for the Sierra Club, was to fight the dam in a FERC administrative hearing. But he does not think they would have prevailed in that forum. 5. Federal Energy Regulatory Commission (FERC) was primarily involved as mediator. FERC staff supported the project and wanted to avoid an administrative hearing and potential litigation. Apparently FERC staff were sensitive to environmental concerns and urged the parties to have extensive scientific studies done so decisions would be based on sound data.5 FERC was not however, the typical neutral third-mediator. Its bureaucratic mission precluded such a role. 6. The Alaska Power Authority (APA) was an "interested observer." Although the agency saw the negotiation as potentially precedent-setting and wanted to limit KEA's concessions, it was never an active player. APA took over the license from KEA in 1982 and is pursuing other hydroelectric development projects in Alaska.6 The Issues and the Process7 Two broad issues emerged as central to this conflict. The first was a jurisdictional dispute between FERC and the Interior Department over which agency had authority to grant KEA development permits. DOI cited the Alaska National Interest Lands Conservation Act for its authority and FERC pointed to the Federal Power Act. This turf battle was further complicated by the USFWS insistence that KEA get a special use permit because the project would affect refuge lands. DOI formally opposed the project for jurisdictional reasons in 1974. FERC, however, ignored the complaint and granted KEA's preliminary permit. The inter- agency squabble was never explicitly settled. Apparently, FERC and KEA continued to ignore DOI and the USFWS whenever it seemed politically expedient to do so. 5 Ibid. 6 Ibid. 7 Ibid. Terror Lake Case #9 - 4 With the FERC permit in hand, KEA hired a consultant to do feasibility studies with funds provided by the Alaska State Legislature. Under the National Wildlife Refuge System Administration Act, the Interior Secretary may authorize certain types of development on a wildlife refuge provided that "such uses are compatible with the purposes for which these areas are established." The issue of whether the development was "compatible" with the refuge's purpose also was in dispute. Some USFWS staff, mainly the Refuges Division, maintained that KEA had to get a special use permit. Refuges staff opposed the project fearing a dangerous precedent and because Congress had yet to act on pending wilderness designations. Meanwhile, the Ecological Services Division was involved in reviewing KEA's studies and proposals. In 1979, KEA applied for a FERC license even though it had not included FWS comments required by FERC regulations. FWS responded by sending KEA a letter stating its intent to file an incompatibility finding and suggested that KEA should examine alternative energy sources and hydroelectric sites away from refuge lands. In the meantime, KEA had hired a political consultant who advised the company to forget about getting FWS approval and focus instead on the FERC licensing process.
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