State and federal natural resources agencies, environmental groups, and recreational outfitters plan to challenge the Sacramento Municipal Utility District's application for relicensing of its 688 MW Upper American River hydroelectric project. The challenge could result in reduced hydropower generation that would force SMUD to buy more expensive power on the open market to meet peak electricity demand during the summer. However, unless the muni changes the way it operates the hydropower project, other economic and environmental protection interests will suffer.\t\t SMUD submitted its voluminous application for a new 50-year license to the Federal Energy Regulatory Commission July 15 without consulting the more than 30 parties with which the muni has been negotiating for the past five years.\t\t Seven state and federal agencies are collaborating with environmental groups to draft an alternative relicensing proposal. They include the U.S. Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, the National Park Service, the state Water Resources Control Board, and the California Departments of Fish and Game and of Parks and Recreation.\t\t "It's not as if SMUD has a lot of say in this," said Ron Stork, Friends of the River senior policy advocate. Federal regulators are required to adopt the agencies' requirements under the Federal Power Act because the project is on national forest land, he said.\t For example, if the wildlife agencies prescribe fish passages and higher minimum flows for streams and reservoirs, FERC must adopt these license conditions. The agencies also will likely propose some facility modifications and changes in how the reservoirs are managed, Stork said.\t\t "We are hoping SMUD will agree to this comprehensive package that will take care of the agencies" concerns and their statutory responsibilities," he said. "But this is clearly where we've reached the point where we want feedback from FERC." The agencies and nongovernmental organizations plan to submit an alternative licensing proposal to federal regulators for the Upper American River Project by late August. SMUD and the parties still hope to reach a settlement agreement that will enable the muni to generate adequate hydropower while preserving aquatic habitat and recreational uses in the 500-square-mile watershed. Settlement negotiations are set to last through the end of the year.\t\t SMUD's operating license for the American River's dams and powerhouses-the muni's only hydroelectric project, and its largest and cheapest source of electricity-will expire in July 2007. The hydroelectric project provides nearly 20 percent of SMUD's power and consists of 11 reservoirs, 8 powerhouses, and a network of canals, tunnels, penstocks, and transmission lines, located primarily in the El Dorado National Forest.\t\t The hydro system provides important voltage control, reserve requirements, and control management functions that give SMUD flexibility for meeting peak power demands, muni officials said.\t\t SMUD opted five years ago to pursue a streamlined alternative licensing process in collaboration with federal and state agencies, environmental groups, river runners, sport fishing groups, and other stakeholders. Since 2001, the muni has held more than 500 meetings with stakeholders and prepared 73 technical studies. The intent was to reach consensus on the license terms and submit a single relicensing application to FERC. \t\t However, SMUD and the parties were unable to agree on a number of competing concerns, including minimum in-stream flows for aquatic wildlife and white-water river rafting, recreational lake levels, and how much operational flexibility the muni would retain. SMUD found itself racing to meet FERC's July 31 deadline for the application, impelling officials to proceed unilaterally without support from the agencies and stakeholder groups. The Federal Power Act requires applicants to submit relicensing applications two years before their licenses expire to enable FERC to conduct a thorough environmental review.\t\t Stakeholders chalk up the delays and impasse to inexperience, noting that this is SMUD's first hydroelectric relicensing application. By contrast, negotiations with Pacific Gas & Electric over relicensing hydropower projects have gone smoothly because of the utility's experience and greater efficiency, they say.\t\t "We have very successful settlements with PG&E over relicensing," said Stafford Lehr, a fisheries biologist with the California Department of Fish and Game.\t\t Significantly, SMUD's dams and powerhouses on the American River were constructed before the National Environmental Policy Act, the Clean Water Act, the Endangered Species Act, and current state environmental laws were enacted.\t\t For example, SMUD must comply with state and federal laws and regulations to protect sensitive species and species of special concern, including the California spotted owl, yellow-legged frog, and northern goshawk, Lehr said. "There's a list of species they'll have to deal with."\t\t SMUD's goal of retaining maximum operational flexibility over the hydro system to meet its peak power demand has run up against state and federal agency mandates to protect fish and wildlife resources, recreational interests, and water quality. Also, recreational facilities have to meet current disability access standards and other legal requirements.\t\t "It's our mandate to ensure adequate protection of the public trust resources of the state of California," Lehr stressed.\t\t If the muni goes along with all those requirements, it will reduce SMUD's operational flexibility by increasing minimum in-stream flows to protect aquatic habitat and recreational lake levels, stakeholders said.\t\t SMUD also applied for an operating license from FERC for its proposed 400 MW Iron Hill pumped-storage project above Slab Creek Reservoir. The muni's board of directors has yet to approve the pumped-storage project. Though it is controversial and contested by neighbors, SMUD officials stress that the Iron Hill project would be built off the river and would not require any new dams to be constructed on the American River or streams. Pumped storage is used for peaking power, but traditionally its use results in a net loss of energy because more power is needed to pump water from a lower reservoir to an upper reservoir than is released from the upper reservoir during times of peak demand.