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PG&E intends to sell a remote Mendocino County hydropower project at an auction this fall, a decision that means little in terms of its meager electrical output but sends a ripple through the water system that supplies cities, residents and ranchers from Ukiah south through much of Sonoma County and into northern Marin County.

Many of the more than 600,000 customers and residents who get their water from the Russian River have no idea how much of it flows from the Potter Valley Project’s two dams on the Eel River and through an aging powerhouse in the out-of-the-way valley about 20 miles north of Ukiah.

There’s no indication yet that PG&E’s divestiture from the 110-year-old project — or the alternative of transferring it to local control — would jeopardize the annual diversion of more than 20 billion gallons of Eel River water into the Russian River. But the utility’s announcement opens the door to changes water experts have anticipated and unsettles communities across two counties that rely on it.

“The water supply needs to be protected,” said Janet Pauli, a longtime Potter Valley rancher and irrigation district official. “It’s very serious. There’s no way around it.”

Lake Mendocino, the reservoir near Ukiah, depends on the Potter Valley diversion to supply dry-season Russian River flows down to Healdsburg and supplement the supply the Sonoma County Water Agency delivers to customers in Sonoma and Marin counties. Most is taken from water stored in Lake Sonoma, the region’s largest reservoir.

But without the diversion, Lake Mendocino would shrivel in size in the driest years ahead, diminishing flows in the upper Russian River, a local government study found.

Mendocino County Supervisor Carre Brown, a Potter Valley resident, said PG&E’s announcement was anticipated, but still came as a shock.

“Now, we have a big issue to confront,” she said, noting that Sonoma, Mendocino, Lake and Humboldt counties all have a stake in the long-standing tug of war over water in the Russian and Eel river basins.

There are imperiled, federally protected salmon and steelhead trout runs in both rivers, and critics of the diversion have long considered it water stolen from the Eel River, which flows out of Lake Pillsbury, a reservoir in Lake County, and courses for 200 miles through Mendocino and Humboldt counties.

The water diversion through a system of tunnels and pipes engineered in the early 1900s transformed 7,000-acre Potter Valley into an agricultural cornucopia that produces $34 million worth of wine grapes, pears, grass-fed cattle and other products a year.

In contrast, the small powerhouse completed in 1908 at the valley’s north end generates 9.2 megawatts of power, about 0.1 percent of PG&E’s nearly 7,700-megawatt total statewide.

Ironically, the project was originally built to generate electricity for Ukiah and the diverted water was essentially an afterthought. Potter Valley ranchers quickly realized their gain and hand-dug canals to keep their lands green when the surrounding hills turn gold.

David Moller, a director in the utility’s power generation department, said in a letter announcing the auction Thursday that shedding the Potter Valley Project would have “a negligible impact on PG&E’s overall portfolio of renewable power.”

Continued operation of the project “is not in the long-term best interests of PG&E’s electric customers,” he said, acknowledging that it “provides important regional benefits, including recreation opportunities and a significant contribution to the Russian River water supply.”

The divestiture is not a novel move for PG&E.

Last month, utility officials announced an auction of two non-operating hydropower projects totaling 28 megawatts in Kern and Tulare counties. And last year, PG&E sold a 3.5-megawatt project to the Merced Irrigation District and launched an auction of a 29-megawatt complex in Butte County.

A year ago, when PG&E filed documents with the Federal Energy Regulatory Commission for relicensing the Potter Valley Project, there were suspicions the utility might opt to decommission the project.

At the time, Moller said decommissioning was “a possibility to be looked at it” in any relicensing case.

Shutting off the water diversion would have a “devastating effect” throughout the Russian River watershed, Brown said at the time, calling the watershed “the economic engine for the county of Mendocino.”

Many farming interests in Sonoma County feel the same way about the water’s value.

Grape growers in the famed Alexander Valley viticultural area would be handicapped, the Sonoma County Farm Bureau said, and residents north of Windsor, as well as fish in the upper river, would be compromised.

Without inflow from the Potter Valley Project, Lake Mendocino would go dry in 60 percent of the years from 2015 to 2045, according to a Sonoma County Water Agency study.

Critics of the project, including the nonprofit Friends of the Eel River, sensed in relicensing a renewed opportunity to press for removal of the project’s two dams that they contend cut off migrating salmon and steelhead from valuable spawning areas above Lake Pillsbury.

The issues and competing interests are now revived, as Moller said PG&E is “open to exploring” the possibility of transferring the project to a “local or regional entity” instead of selling it at an auction.

James Gore, chairman of the Sonoma County Board of Supervisors, said a county bid on the project would need to include Mendocino, Lake and Humboldt counties, a sentiment that Brown expressed, as well.

“It’s go time to try to figure out how we honor the different needs for that water,” he said.

Gore noted the irony of working collaboratively with PG&E on water issues while the county and utility are in a legal battle over damage claims from the October wildfires.

Rep. Jared Huffman, D-San Rafael, said PG&E’s move to sell or transfer the hydropower project could be “a productive opening” for dialog involving the multiple interests in two watersheds.

“I certainly am willing to facilitate conversations,” he said. “Stay tuned.”

You can reach Staff Writer Guy Kovner at 707-521-5457 or guy.kovner@pressdemocrat.com. On Twitter @guykovner.

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