Proposed $161M CUP bailout causing 'heartburn'

The Obama administration told the Senate on Thursday that a proposed $161 million bailout for the Central Utah Project gives it heartburn, but it still stopped short of opposing the proposal outright.

The administration also conceded that without the bailout, the CUP's Diamond Fork pipeline, which transports water from Strawberry Reservoir to Utah County, may never be able to afford developing hydropower, which Utah officials say is needed.

"The administration has serious concerns about losing the ability to recoup the federal investment made in these facilities," U.S. Bureau of Reclamation Commissioner Michael Connor told the Senate Energy and Natural Resources Subcommittee on Water and Power.

When the federal government built the Diamond Fork pipeline, it assigned $161 million of the system's costs to be repaid through sale of electricity from expected future development of hydropower there.

However, Sen. Bob Bennett, R-Utah, ranking Republican on the subcommittee and sponsor of the bill, said those costs mean "any hydropower facility developed at Diamond Fork is $161 million in the hole before any dirt has been turned" to build power plants.

With that, he said no power companies have been able to afford developing power that could be sold at market rates or below.

"So if we want the power, and we do," Bennett said, the government needs to "permanently defer" the $161 million and get what it can from power leases that do not include repaying that amount.

"You'll lose it all if there is no hydropower development at Diamond Fork," Bennett told Connor.

Connor said a 2004 Interior Department economic analysis figured that a viable hydropower project could include repaying the $161 million, but that analysis was controversial, and no companies have come forward to propose a project in the five years since.

"So we've had five years of experience without it going forward," Bennett said. "Let's not let another five years go by without any money coming into the federal government. The $161 million indeed has been spent. It is a sunk cost."

CUP officials envision building 50-megawatt hydroplants if the debt is forgiven.A similar bailout bill sponsored by Rep. Jim Matheson, D-Utah, has passed the House Natural Resources Committee and is pending before the full House.

Meanwhile, the administration Thursday did support another, much less controversial bill by Bennett to allow the Uintah Water Conservancy District in Vernal to prepay the federal government for development of water from the Red Fleet Dam to save interest and other long-term payments required by contracts.

A similar bill to that, also sponsored by Matheson, passed the House in September.

e-mail: lee@desnews.com