This project, located on Sawmill Creek in the Borough of Sitka, Alaska, occupies 1,628.1 acres of federal lands administered by the U.S. Forest Service.

The Blue Lake Project is operated in conjunction with the Green Lake Project No. 2818. The Blue Lake Project is operated to meet daily base loads and the Green Lake Project is operated to meet daily peak loads. Both project reservoirs are drawn down during winter when inflow to the reservoirs decreases and the demand for electricity increases.