The damned dams of NH

Jim Gallagher, chief of the Dam Bureau of the New Hampshire Department of Environmental Services (DES), told the House Resources, Recreation and Development Committee yesterday that the money to operate and maintain the 269 dams owned by the state would run out at the end of June 2007.

"If we can't operate the dams, we'd have to open the gates," Gallagher said. "What happens if the dams are opened up," asked Representative Sandy Keans (R-Rochester). "Some impoundments would be completely drained," Gallagher replied, adding that "Lake Winnipesaukee would drop by about nine feet."

Gallagher made his remarks in the course of a public hearing on Senate Bill 103, sponsored by Senator Carl Johnson (R-Meredith), which would convene a committee to recommend a stable source of funding for the operation and maintenance of dams. Originally the bill included an appropriation of $1 million to tide the bureau over through 2007 until its funding crisis could be overcome, but the Senate Finance Committee reduced the appropriation to $1.

Johnson opened the hearing by reminding the committee of the importance of maintaining the dams and recommending that the $1 million be appropriated while the search for an alternative funding source was pursued. "At the end of the biennium the bank will run dry. We're at crisis point now," said Gallagher, who echoed Johnson by urging the committee to restore the $1 million.

Of the 269 state-owned dams, 29 are designated as "high hazard dams," the failure of which would lead to lives lost and property damaged downstream. Another 53 are rated as "significant hazard dams," whose failure would certainly damage property and could possibly claim lives. Most of these dams are "well over 100 years old," Gallagher said, and without repairs have a design life of about 50 years. Therefore, the state must repair or reconstruct an average of five dams a year to ensure that all are in a safe condition. Meanwhile, dams must be constantly managed not only to prevent flooding downstream but also to sustain water levels on which outdoor recreational opportunities and shorefront property values depend, particularly in the Lakes Region where the levels of lakes Winnipesaukee, Opechee, Winnisquam, Squam and Newfound are all controlled by dams. The Dam Bureau employs a construction crew of eight along with five dam operators.

The maintenance, repair and operations of state-owned dams is funded by the Dam Maintenance Fund, which the Legislature established in 1982 by authorizing the sale of $2.5 million of general obligation bonds. Since then the Legislature has increased the bond limit to $9.8 million. The proceeds DES receives from leasing 12 of its dams to private hydro-electric power producers is dedicated to the repayment of the bonds and any balance is credited to the fund for maintenance, repair and operation. The proceeds from the leases represent a share of the revenue from the sale of the power generated by the hydro-electric stations, ranging from 3.5 percent to 26 percent depending on the agreement. Public Service Company of New Hampshire (PSNH) purchases the power generated at 11 of the 12 facilities.

The Dam Maintenance Fund began running out of money in 2002, Gallagher explained. As part of the effort to restructure the electric utility industry and reduce retail electric rates, PSNH renegotiated its contracts with independent power producers, including hydro-electric producers. These contracts required PSNH to purchase the output of hydro-electric and wood-burning power plants at rates in excess of market energy prices. When PSNH either bought out or bought down its contracts with seven of the hydropower producers leasing state-owned dams, revenue to the Dam Maintenance Fund dropped 40 percent. Although the restructuring of electric utilities has saved ratepayers an estimated $6.2 million, it bankrupted the Dam Maintenance Fund. "It was totally unanticipated," Gallagher said. "The unintended consequence of a legislative initiative."

Moreover, in 2003 the lease for the Pontook Dam on the Androscoggin River at Dummer was acquired by Brascan Corporation, which sells the power it generates to a subsidiary at below-market rates. In 2005, this transaction cost the Dam Maintenance Fund $300,000. Finally, the smaller hydro-electric producers leasing from DES began finding that the market price for their power failed to cover their costs. One stopped production and another is considering it.

Gallagher told the committee that when the revenue from the leases began shrinking in 2002, the Dam Bureau began tapping a reserve fund amassed from the sale of water stored at Lake Francis, at the headwaters of the Connecticut River, to downstream hydro-electric producers. Already, he said the bureau had run through $2 million of the $3 million in the fund and the remainder was designated for the maintenance of Murphy Dam at Lake Francis. "All reserves have been nearly exhausted," Gallager declared.

Last year, the Legislature rejected two alternative sources of funding for the Dam Maintenance Fund, which were recommended by a study committee. One bill would have designated a portion of gasoline tax refunded to boaters for the fund. Boaters are entitled to the refund because the gasoline they purchase is not used on the roads, which are maintained with the proceeds from the tax. But, of the $1.8 million in potential refunds each year, only $133,000 is claimed, leaving a balance that is divided between the Fish and Game Fund and the general fund. At the same, SB 103, in its original form, would have assessed a flat fee of ten cents per linear foot on public and private property fronting on bodies of water where the levels are regulated by state-owned dams. Altogether there are some 5.8 million feet of such shoreline, representing about $580,000 in revenue shorefront. Despite support from the New Hampshire Lakes Association, which represents many owners of shorefront property, the Senate stripped this provision from the bill.

"There is no revenue to do anything but make the bond payments," Gallagher said flatly. "What's your contingency plan?" asked Representative Chris Christensen (R-Merrimack). "I can't budget without revenue," Gallagher replied. "I'll have to let go of the folks who do the work." Gallagher went on to explain that if the dams could not be operated or maintained, the only alternative would be to open the gates, otherwise the dams would be at risk of failing.

Apart from the risk of flooding downstream, Gallagher explained that water levels in most lakes and ponds could not be managed without constant operation of the dams. "If your lake goes down or away," said Keans, "your property loses value." Gallagher answered that "hundreds of millions of dollars in recreational business, property values and property tax revenues" depend on maintaining water levels within stable and predictable levels.

"I couldn't be more frustrated with the Senate for not recognizing the gravity of the situation," exclaimed representative Judith Spang (D-Durham). She suggested that Gallagher make a list of the dams that would have to be opened. "That would show whose ox is being gored," she said. "The bill would pass with this list!"

"If you drain those lakes, you'll get your money," echoed Representative Harry Merrow (R-Center Ossipee). "I guarantee it."