[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




              HYDROELECTRIC RELICENSING AND NUCLEAR ENERGY

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 27, 2001

                               __________

                           Serial No. 107-55

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Energy and Air Quality

                      JOE BARTON, Texas, Chairman

CHRISTOPHER COX, California          RICK BOUCHER, Virginia
STEVE LARGENT, Oklahoma              RALPH M. HALL, Texas
  Vice Chairman                      TOM SAWYER, Ohio
RICHARD BURR, North Carolina         ALBERT R. WYNN, Maryland
ED WHITFIELD, Kentucky               MICHAEL F. DOYLE, Pennsylvania
GREG GANSKE, Iowa                    CHRISTOPHER JOHN, Louisiana
CHARLIE NORWOOD, Georgia             HENRY A. WAXMAN, California
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
HEATHER WILSON, New Mexico           BART GORDON, Tennessee
JOHN SHADEGG, Arizona                BOBBY L. RUSH, Illinois
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              THOMAS M. BARRETT, Wisconsin
ROY BLUNT, Missouri                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan
GEORGE RADANOVICH, California          (Ex Officio)
MARY BONO, California
GREG WALDEN, Oregon
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Aurilio, Anna, Legislative Director, U.S. Public Interest 
      Research Group.............................................    87
    Birnbaum, S. Elizabeth, Director, Government Affairs, 
      American Rivers............................................   141
    Davis, George A., Director, Government Programs Nuclear 
      Systems, Westinghouse Electric Company.....................    66
    Fertel, Marvin S., Senior Vice President, Business 
      Operations, Nuclear Energy Institute.......................    54
    Hebert, Hon. Curt L., Jr., Chairman, Federal Energy 
      Regulatory Commission; accompanied by J. Mark Robinson, 
      Director, Office of Energy Projects and Kristina Nygaard, 
      Associate Counsel for Energy Projects, Office of General 
      Counsel....................................................   100
    Hill, Barry T., Director, Natural Resources and Environment; 
      accompanied by Charles S. Cotton, Assistant Director and 
      Erin Barlow, Senior Analyst, Natural Resources and 
      Environment, General Accounting Office.....................   126
    Magwood, William D., Director, Office of Nuclear Energy, 
      Science and Technology, U.S. Department of Energy..........    29
    Meserve, Richard A., Chairman, U.S. Nuclear Regulatory 
      Commission.................................................    19
    Parme, Laurence L., Manager, Nuclear Safety and Licensing, 
      General Atomics............................................    72
    Prescott, John, Vice President of Generation, Idaho Power 
      Company....................................................   131
    Quattrocchi, John L., Senior Vice President, Underwriting, 
      American Nuclear Insurers..................................    80
    Shems, Ronald, Attorney, Shems, Dunkiel, PLLC, on behalf of 
      Vermont Agency of Natural Resources........................   151
    Skolds, Jack, Chief Operating Officer, Exelon Nuclear........    61
    Womack, E. Allen, President, BWX Technology, Inc.............    77
Material submitted for the record by:
    Breathitt, Hon. Linda, Commissioner, Federal Energy 
      Regulatory Commission, prepared statement of...............   164
    Hebert, Hon. Curt L., Jr., Chairman, Federal Energy 
      Regulatory Commission, letter dated August 3, 2001, 
      enclosing response for the record..........................   178
    Hogarth, William T., Acting Assistant Administrator for 
      Fisheries, Office of Protected Resources, National Marine 
      Fisheries Service, U.S. Department of Commerce, prepared 
      statement of...............................................   175
    Massey, Hon. William, Commissioner, Federal Energy Regulatory 
      Commission, prepared statement of..........................   166
    Sampson, Donald, Executive Director, Columbia River Inter-
      Tribal Fish Commission, prepared statement of..............   168
    Veneman, Hon. Ann, Secretary, U.S. Department of Agriculture, 
      prepared statement of......................................   174

                                 (iii)

  

 
              HYDROELECTRIC RELICENSING AND NUCLEAR ENERGY

                              ----------                              


                        WEDNESDAY, JUNE 27, 2001

                  House of Representatives,
                  Committee on Energy and Commerce,
                    Subcommittee on Energy and Air Quality,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:15 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Cox, Largent, 
Burr, Shimkus, Wilson, Shadegg, Pickering, Bryant, Radanovich, 
Bono, Walden, Tauzin (ex officio), Boucher, Sawyer, Wynn, 
Doyle, John, Markey, McCarthy, Strickland, Barrett, Luther, and 
Dingell (ex officio).
    Staff Present: Jason Bentley, majority counsel; Andy Black, 
policy coordinator; Dwight Cates, majority professional staff; 
Peter Kielty, legislative clerk; Elizabeth Brennan, Intern; Sue 
Sheridan, minority counsel; and Eric Kesster, minority 
professional staff.
    Mr. Barton. The subcommittee will come to order. We want 
the record to show that the reserve recording clerk got here 
before the primary recording clerk. So we are appreciative that 
you were able to come. You got here quicker than the person who 
is supposed to be here.
    We are going to hold our hearing today on hydro relicensing 
and nuclear energy. This is another in a long series of 
hearings that we have held on national energy policy. As 
yesterday's Wall Street Journal reported, the Nuclear 
Regulatory Commission is about to be inundated with license 
renewal applications from many of our Nation's 103 nuclear 
power plants. Those applications are extremely important to our 
Nation's future. If the NRC determines that these plants should 
have the licenses extended, we can be assured many more years 
of safe and reliable electricity generated from nuclear power. 
One topic of today's hearing is the readiness of the NRC to 
handle those applications properly, whether Congress should 
make any changes to NRC and relevant law in order to handle 
this coming relicensing application search. I would like to 
thank all of our witnesses today who are going to speak on that 
subject.
    I want to particularly thank Chairman Meserve of the NRC, 
who greatly altered his schedule to appear before this 
subcommittee. He was in Atlanta yesterday, in a retreat with a 
professional staff, and changed his schedule to appear here, 
and we appreciate that.
    I would have to say that the Wall Street Journal's line 
drawing that you viewed in a recent issue does not do you 
justice. But your wife may like it; I don't know.
    There are several other nuclear issues that deserve our 
attention. The NRC might also begin to receive applications, 
believe it or not, for new nuclear power plants or expansions 
of existing capacity. We have before the subcommittee today 
representatives of some of those potential applicants and other 
interested parties. The question might be, is the NRC ready for 
new applications? What laws will affect our ability to get a 
fair, science-based, and timely answer to those permit 
applications if they do come?
    The subcommittee has also got a history on these issues of 
acting in a bipartisan fashion on such things as taking the 
Nuclear Waste Fund off budget and looking at comprehensive 
legislation dealing with Yucca Mountain. We are going to await 
a recommendation from the scientists at Yucca Mountain and then 
from the Secretary of Energy before we begin to move a bill on 
high-level nuclear waste. This subcommittee is not going to be 
complacent while we are waiting.
    I personally think we should act again, and very soon, to 
take the Nuclear Waste Fund off budget, so that the ratepayers 
who have paid their money into this fund over the last 20-some-
odd years actually get what they paid for.
    Finally, at some point the subcommittee is going to 
reauthorize the Price-Anderson Act which lapses in August 2002, 
which is next year. There are many in the industry that think 
one of the most important signals that Congress could send in 
this session would be to reauthorize Price-Anderson.
    This is an issue that we are going to make a decision on as 
to when to take it up, in consultation with our Minority 
members, but we are going to take it up at some point, 
hopefully this year.
    Next we are going to look at hydroelectric power. There are 
many dams licensed by the Federal Energy Regulatory Commission 
that are also coming up or are up for relicensing very soon. 
Congress should review the relicensing process to make certain 
that all who submit an application for renewal can receive a 
timely response, with appropriate conditions, at an acceptable 
cost. A recent report by the FERC indicates the current process 
may not allow that, and many licensees have told me that they 
agree and think that there are significant reforms that should 
be enacted on the hydro front.
    We have before the subcommittee today a representative of 
the Coalition of Hydropower Licensees and the environmental 
community, as well as many others who can testify about the 
process.
    The Chairman of the FERC, Curt Hebert, is not here at the 
moment but will be here by 1 o'clock. He has pending business 
before the FERC today and has had to change his schedule also 
in order to come over and appear before the subcommittee this 
afternoon. So I thank him in advance for his willingness to 
come before the committee.
    Next week is the Fourth of July work period. After that, 
Congress and this subcommittee will return to aggressive action 
on energy. Chairman Tauzin and I have discussed the 
subcommittee going straight to work on a series of issues the 
week of our return. We would like to act on conservation, 
nuclear energy, hydro relicensing, clean coal, possibly more.
    Very soon thereafter, we want to start hearings and 
discussions concerning structural reform of our electricity 
laws, with a goal of increasing transmission capacity, 
improving the operation of our transmission markets and 
removing barriers to wholesale and retail competition 
generation. I am going to be working very closely for the rest 
of this summer with all members of the subcommittee and 
especially with the ranking member, Mr. Boucher, my good friend 
of the great State of Virginia. I am told that he, Mr. 
Whitfield, Mr. Shimkus, Mr. Strickland, Mr. Doyle, and others 
are soon going to introduce legislation on clean coal 
technology, and hopefully that can be drafted in a way that 
this subcommittee can look at it officially and support that 
very timely issue.
    With that, I would like to recognize the ranking member, 
Mr. Boucher of Virginia.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. Given 
the length of the data we have before us and the number of 
witnesses who will be testifying before the committee during 
the course of this day, I am going to be exceedingly brief in 
these remarks. In fact, this morning I am simply going to make 
three points.
    First, I think it is vitally important that we take the 
time which is necessary to construct carefully the 
subcommittee's legislation. And I am somewhat concerned that 
the schedule that we have before us for reporting legislation 
over the next several weeks is ambitious, and so I would simply 
caution this morning that whatever time is necessary to 
carefully to construct the committee's bills should be taken.
    I appreciate the approach that Chairman Barton has taken to 
the subcommittee's work on the entire range of matters now 
before us. At each step, he has consulted and sought 
recommendations from our side. He has offered and continues to 
offer ample opportunity for this side to participate fully in 
the drafting process. And I thank him for taking this approach. 
I realize that the time constraints we are now facing for 
reporting comprehensive energy legislation is not of his making 
or, for that matter, of Chairman Tauzin's making, but I must 
voice my concern this morning about those constraints 
nonetheless.
    Second, and with reference to today's hearing, I appreciate 
the acceptance by the chairman of our request that a markup of 
the Price-Anderson reauthorization be deferred until a later 
time. The many complex matters that reauthorization will entail 
will necessarily require more time than is available this 
summer. It is appropriate that we begin the discussion of those 
matters this morning with our two panels of witnesses, and I 
look forward to their testimony, which will help to frame the 
issues we will address at a later time during the course of 
this year.
    I support and encourage reauthorization of Price-Anderson 
on the longer time line upon which we are now operating for 
this matter. I would encourage, however, that we act now in 
order to take the Nuclear Waste Fund off budget. And I am 
pleased to hear the chairman's remarks in sum on that same 
position this morning.
    Third, as we address hydroelectric relicensing matters, I 
want to urge that environmental concerns be given at least the 
priority that they have in the current law. I acknowledge the 
concerns that have been expressed by the industry that the 
existing relicensing process is time-consuming, cumbersome and 
costly, but as we seek ways to address those industry concerns 
and facilitate the relicensing process, we in my view must not 
diminish the consideration current law requires for the 
protection of environmental resources.
    Thank you very much, Mr. Chairman, for organizing our 
discussion today, and I yield back and look forward to hearing 
from our witnesses.
    Mr. Barton. I thank the gentleman from Virginia.
    We would recognize the distinguished full committee 
chairman, Mr. Tauzin of Louisiana.
    Chairman Tauzin. Thank you, Mr. Barton, both for this 
hearing and for the extraordinary lineup of witnesses who will 
help us understand both the nuclear and the hydro relicensing 
issues that we will shortly take up. Let me thank my friend, 
Mr. Boucher, for his kind words of appreciation and to the 
process we are trying to execute.
    In the life of our committee, time has always been short. 
Time has always been constrained, and we always work under very 
tough time lines, and in this case, we will obviously be faced 
with a case of that in the next several weeks.
    The Nation, however, I think expects us to act. There is, I 
think, no larger consumer issue facing America today than the 
energy issue. It perhaps even dwarfs the issue that Mr. Dingell 
and I have been working on, the broadband issue in the telecom 
area, and soon-to-be-introduced third-generation spectrum issue 
that will make wireless broadband hopefully available to all 
Americans.
    Because energy is becoming short and prices are beginning 
to rise in a number of marketplaces, consumers are keenly 
interested in what we intend to do, and not in the long run, 
but in the short run, immediately, as soon as we can, to 
alleviate what many experts are predicting to be even larger 
price increases and other problems and shortages.
    In that light, nuclear power and hydro now, to the surprise 
of many Americans, provide two of the Nation's largest sources 
of electricity after coal, even larger than natural gas. And 
while nuclear was thought for a while to be on its last leg, 
there are now many nuclear companies who are prepared and 
anxious to relicense their facilities and execute new plants 
for construction over the next decade.
    Mr. Boucher, we are talking about a terribly benign 
environmental way to produce electricity, if it can be done 
safely, and we know it can be today. And the question is, will 
the Nuclear Regulatory Commission be prepared for all these 
relicensing permits, with 25 percent of staff eligible for 
retirement, can you handle what may be a new future for nuclear 
energy in America? That, of course, is one of the key questions 
we will want answered today.
    Second, let me thank you, Mr. Meserve, for the several 
legislative proposals you have already submitted to us. We have 
been examining those and sharing them in this process, and we 
thank you for those efforts.
    Third, let me ask that this hearing also educate us on the 
question whether it is time, in fact, to reauthorize Price-
Anderson. And while we may not be acting on it in this package, 
do we need to act on it relatively soon? We are told that the 
nuclear industry will not build new plants, unless Price-
Anderson is reauthorized. And because it is set to expire on 
August of 2002, perhaps we need to expedite the relicensing of 
Price-Anderson as soon as we can, following this package.
    In the area of hydroelectric, we know that hydroelectric 
power produces--has the capacity to produce as much as 12 
percent of this Nation's electricity, and yet it is only now 
providing about 8 percent. Out west, it is a critical 
component; that is, capacity is one-third of the electric power 
needed out west at a time when the West is suffering through 
shortages of power and potential blackouts.
    We know that the drought out west has reduced that 
potential. In fact, we understand it is now down about 15 
percent of that capacity. But when we talk about one-third of a 
region's electric generation capacity, we would be, I think, 
terribly remiss not to examine the relicensing process, not to 
roll back or to diminish environmental concerns, but to ensure 
that we have a process that is reasonable and gets its power 
back online, where in fact it can be put back online in a 
region of the country that desperately depends upon this form 
of energy for so much of its power.
    In short, this hearing today is going to educate us as we 
move into legislative markup very soon. And Mr. Barton and Mr. 
Boucher, I want to thank you again for the cooperative way in 
which you are approaching this very challenging time for our 
committee, and I also want to thank my friend, the ranking 
member of the full committee, Mr. Dingell, for the help of his 
staff and his own guidance as we move forward in trying to find 
as many bipartisan agreements we can on this energy package.
    Mr. Chairman, I thank you and yield back the balance of my 
time.
    Mr. Barton. I thank the chairman, and would recognize the 
ranking minority member of the full committee, Mr. Dingell of 
Michigan, for an opening statement.
    Mr. Dingell. Mr. Chairman, thank you. I want to begin by 
expressing my appreciation to you for the hearing today, and 
also to express my appreciation to the chairman of the full 
committee, Mr. Tauzin, for the way in which he has been working 
with me on the concerns which we share.
    I want to say that there are many things that this 
committee can do to improve the energy situation in the 
country. I would note that none of them will give us a speedy 
or a quick fix. I also would note that to move fast may be to 
move poorly. And I think that the result of what we do in this 
process will be more important to do well than to do in any 
great haste, because it is doubtful that any of the things 
which we will do will have a very immediate impact on the 
situation that we confront.
    Nevertheless, I and my colleagues on this side are prepared 
to work with the leadership, anxious to work with the 
leadership of this committee, and hope to be able to fashion in 
an expeditious fashion a good response to the problems which we 
confront.
    I would note that these are problems. These do not 
constitute a crisis. I think both sides of the aisle are trying 
to work together on a number of issues in an effort to report 
bipartisan legislation out of this committee. That is good. I 
would note that these hearings represent an attempt by the 
majority to accommodate the insistence of the minority upon 
having hearings to learn the effects prior to undertaking 
legislative action. That is good.
    Unfortunately, the process will best result, I think, in a 
razor-thin record on issues of great complexity and importance. 
Those events may then curtail this committee's ability to do 
more than legislate on the margins of some very important 
matters. I do wish to reiterate that I will do the best I can 
to work with my friend, Mr. Tauzin, and you and all the 
members, to try and reach consensus on a number of these 
matters in the next 2 weeks; although I note again that I think 
that that is probably too fast and will lead to probably fights 
unneeded, and also perhaps what may be constituted as a 
political bill as opposed to a real substance approach to the 
situation.
    In 1987, this committee reported a Price-Anderson bill with 
a strong bipartisan vote. I support nuclear power, and I 
believe that by and large, nuclear power and that act has 
served this Nation well over time. I will note that there are a 
lot of problems that are going to have to be addressed in the 
nuclear situation. I would also observe that given a thorough 
examination of the issue, I hope the committee will again 
report legislation to reauthorize the act.
    Today's hearing is a good start, but I do not believe the 
Congress should act on Price-Anderson without developing the 
kind of thoughtful record that supported the three prior 
extensions in 1965, 1975, and 1988. On the utility side, it may 
be that the industry needs changes in the law to ensure that 
new and smaller reactors are not saddled with overly high 
obligations in the event of an accident. On the contractor 
side, it is worth examining whether DOE should continue to 
indemnify its contractors for injury to the public, even when 
gross negligence or willful misconduct by the contractor was 
the cause. Our main concern should be whether the act continues 
to serve the public interest. And I think a question of the 
kind just raised is whether the public interest there is 
served.
    Turning to hydropower, I have taken a long and a strong 
interest in the hydroelectric relicensing process. In the mid-
1980's, I worked closely with Mr. Markey and a number of other 
members of this committee to enact the Electric Consumers 
Protection Act, which directed FERC to give equal consideration 
to fish, wildlife, recreation, and other environmental 
benefits, something that had been grossly disregarded both by 
the statute, by the government, by the industry, and by the 
regulatory process in the years since the original licensing 
process had begun. The final version of the legislation was 
overwhelmingly passed by a Republican-controlled Senate and 
became the law with President Ronald Reagan.
    While there is certainly room for improving the licensing 
process, those improvements should not come at the expense of 
environmental safeguards that are of critical importance to 
river ecosystems, States, the municipalities, the Indian 
tribes, fishermen, boaters, farmers, and the public's drinking 
water.
    Making changes in a responsible manner requires time and 
effort. Unfortunately, that need to provide time and effort 
appears to conflict with the haste that I see possible here.
    Since last year, there are two new reports on FERC's 
hydroelectric relicensing process for us to consider. One is 
written by FERC, I would note hardly a neutral party, and the 
other by the General Accounting Office, an independent agency 
and known for its independence and integrity.
    Now, I would note that this FERC staff report seems to say 
that everybody but FERC is the problem, and giving FERC more 
power is the answer. Interestingly enough, the FERC staff cited 
the individual States, acting pursuant to their Clean Water Act 
rights and responsibilities, as the factor most responsible for 
extending the duration of the licensing process. If this is 
true, it raises great questions about the extent to which we 
can expect the duration of the licensing process to be 
expedited without opening the Clean Water Act and without 
curtailing the rights of several States. The GAO report, which 
was commissioned by two of our Republican colleagues, calls 
into question the very basis of FERC's claims that 
environmental protection, fishermen, hunters, farmers and 
Native Americans are the cause of the hydroelectric industry's 
woes.
    I am hardly surprised to see FERC taking the position it 
takes, since I believe that it has been a major part of the 
problem. The GAO report concluded that the FERC lacks the data 
to back up any of the assertions that it has made in its study 
on policy recommendations. This should come as no surprise to 
any of my colleagues, who will recall that I raised this very 
issue and related questions last year. I still want to know how 
many licenses were turned down or delayed by FERC as a result 
of environmental protections imposed by the resource agencies. 
And if there is anybody around here from FERC, they should be 
prepared for a little questioning on that matter today or any 
other time--10,000, 1,000, 100, 10 or 1--and the question then 
is, if this situation is so bad, why do utilities pay above-
market value for these threatened facilities?
    Rivers are a precious natural resource. They are a property 
of all of the people, and they should be managed by us and 
other regulatory agencies for the benefit of the public. They 
are not luxury swim clubs to be run by FERC for the benefit of 
any special interest. I do know that there are things we can 
do, even in a short timeframe, that would assist the industry 
in the manner of creating a good public policy, if the members 
of this committee and the stakeholders are willing to accept 
modest changes. For example, perhaps we can make some progress 
in areas of flexibility with regard to equally protective but 
lower-cost alternatives to agency prescriptions; possibly 
fixing FERC's inadequate data collection, and perhaps providing 
some regulatory incentives for project owners to upgrade their 
turbines to more fish-friendly and efficient models.
    In any event, I want you to know, Mr. Chairman, I will be 
happy to work with you to try and make this process go forward 
to address complex technical issues in a reasonable timeframe 
under regular order. And, of course, I am always prepared for a 
vigorous debate in markup if the situation goes sour, which I 
hope it will not.
    In any event, I look forward to our distinguished witnesses 
and thank you for your kindness and yield back the balance of 
my time.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Thank you, Mr. Chairman.
    Today's hearing is a curious one. Those in the audience are likely 
asking themselves what nuclear and hydroelectric issues have in common 
with each other. For now, the clearest link I can see is that both are 
complex long term issues that we are under pressure to act rapidly upon 
to show Congressional action on energy policy.
    I think both sides of the aisle are trying to find ways to work 
together on a number of issues in an effort to report bipartisan energy 
legislation out of this Committee. I would note that these hearings 
represent an attempt by the Majority to accommodate our insistence upon 
having hearings to learn the facts prior to undertaking legislative 
action.
    Unfortunately, this process will at best result in a razor thin 
record on issues of extreme complexity and importance, and severely 
curtail this Committee's ability to do more than legislate on the 
margins of some of these matters.
    Nonetheless, I want to be clear that I will do what I can to work 
with Chairman Tauzin, you and all our Members to try to reach consensus 
on a number of these matters in the next two weeks.
    In 1987, this Committee reported a Price-Anderson bill with a 
strong bipartisan vote. I support nuclear power, and believe by and 
large the Act has served the nation well over time.
    Given a thorough examination of the issue, I hope the Committee 
will again report legislation to reauthorize the Act. Today's hearing 
is a good start. But I do not believe Congress should act on Price-
Anderson without developing the kind of thoughtful record that 
supported three prior extensions in 1965, 1975, and 1988.
    On the utility side, it may be that industry needs changes in the 
law to ensure that new and smaller reactors are not saddled with overly 
high obligations in the event of an accident. On the contractor side, 
it is worth examining whether DOE should continue to indemnify its 
contractors for injury to the public even when gross negligence or 
willful misconduct was the cause. Our main concern should be whether 
the Act continues to serve the public interest.
    Turning to hyrdopower, I have long taken a strong interest in the 
hydroelectric relicensing process. In the mid-1980s, I worked closely 
with Mr. Markey and several other Committee members to enact the 
Electric Consumers Protection Act, which directed FERC to give equal 
consideration to fish and wildlife, recreation, and other environmental 
benefits. The final version of the legislation overwhelmingly passed a 
Republican-controlled Senate and became law with the assent of 
President Ronald Reagan.
    While there is certainly room for improving the licensing process, 
those improvements should not come at the expense of environmental 
safeguards that are of critical importance to riverine ecosystems and 
the states, municipalities, tribes, fishermen, boaters, farmers, and 
the public's drinking water. Making such changes in a responsible 
manner requires time and effort. Unfortunately, we appear to be rushing 
to legislate on this complex matter.
    Since last year, too, there are two new reports on FERC's 
hydroelectric licensing process for us to consider: one written by FERC 
--a not quite neutral party--and the other by the independent General 
Accounting Office.
    Not surprisingly, the FERC staff report seems to say that everyone 
but FERC is the problem and giving FERC more power is the answer. 
Interestingly, the FERC staff cited the individual states--acting 
pursuant to their Clean Water Act rights and responsibilities--as the 
factor most responsible extending the duration of the licensing 
process. If this is true, it raises serious questions about the extent 
to which we can affect the duration of the licensing process without 
opening the Clean Water Act and curtailing the rights of states.
    The GAO report--commissioned by two of our Republican colleagues--
calls into question the very basis of FERC's claims that environmental 
protection, fishermen, hunters, farmers, and Native Americans are at 
the cause of the hydroelectric industries woes. It concluded that FERC 
lacks the data to back up any of its assertions or policy 
recommendations. This should come as no surprise to my colleagues who 
will recall that I raised this very issue and related questions last 
year. I still want to know how many licenses have been turned down by 
FERC as a result of the environmental protections imposed by the 
resource agencies? 10,000? 1,000? 100? 10? 1? Why do utilities pay 
above market value to acquire these ``threatened'' facilities?
    Rivers are a precious natural resource owned by all the American 
people and managed for them by the resource agencies and the states. 
They are not luxury swim clubs to be run by FERC for the exclusive 
benefit of our nation's electric utilities.
    I do think there are a few things we could do on even such a short 
time frame that would assist the industry and have the benefit of being 
good public policy--if the Members of this Committee and the 
stakeholders are willing to accept modest changes. For example, perhaps 
we can make some progress in the areas of flexibility with regard to 
equally protective but lower cost alternatives to agency prescriptions, 
fixing FERC's inadequate data collection, and perhaps providing some 
regulatory incentives to project owners to upgrade their turbines to 
more fish-friendly and efficient models.
    In any event, I will be happy to work with you to try to make some 
small changes now or tackle more complex issues in a reasonable time-
frame under regular order. And, of course, I am always prepared for a 
vigorous debate and markup if the deadline imposed by the Republican 
leadership forces ill-considered Committee action.
    For now, I look forward to hearing from our distinguished witnesses 
and yield back the balance of my time.

    Mr. Largent [presiding]. I thank the gentleman for his 
statement. I will recognize myself for a brief remark, simply 
to say I have heard a number of my colleagues say we need to 
move slowly. It reminds me of the joke about the snail that 
crawled upon the turtle's back, and his response was, ``Whee.''
    If we move any slower, the lights will be flickering here 
in Washington, like they are in California. And I will submit 
my entire statement for the record, and we will recognize--the 
next Democrat is Mr. Luther, who has returned.
    Mr. Luther. Thank you, Mr. Chairman. I will be very brief. 
I want to thank you, first of all, for having the hearing. I am 
particularly interested in hearing the evidence and the 
testimony on hydropower. I think this has often been overlooked 
in terms of the potential that this can provide for us, and I 
think that as I look at the proposal, the Bush proposal--and I 
appreciate the fact that has mentioned hydropower. I think we 
have seen few details at this point, but I think that there is 
an opportunity here on the part of the committee to actually 
look at ways to encourage, not to just talk about the 
relicensing process and the regulatory aspects of it, but to 
figure out ways to truly encourage hydropower.
    And so that is what I will be looking for in terms of 
testimony and in discussions with other committee members, and 
again, I want to thank you for focusing a part of the hearing 
on that particular source of power. Thanks.
    Mr. Largent. I thank the gentleman and recognize, let me 
see, Mr. Shimkus from Illinois.
    Mr. Shimkus. Thank you, Mr. Chairman. With apologies to 
Chris John and Michael Doyle and Bart Stupak, I want to say 
publicly, ``whee,'' and thank you for your time as a batter 
mate in the congressional baseball game. It has been a pleasure 
for the Republican side of the House Commerce Committee to have 
you, and I am going to miss you next year on the mound.
    Let me also mention my colleague, Mr. Boucher, and I and 
many other Members throughout the coal bill yesterday, that we 
hope will be part of the national energy debate. I have always 
said, many of you have heard who have sat in here, that we need 
a diversified energy portfolio, coal being one of those. But 
nuclear should have a strong seat at the table, along with 
hydro. That is why relicensing of both is very critical. That 
is why reviewing the Price-Anderson Act is critical to do that. 
We cannot continue to have all our energy eggs placed in one 
basket, and that is part of the national problem. 
Diversification is the key. This hearing is important.
    I thank you, and I yield back my time.
    Mr. Largent. I thank the gentleman. The Chair will announce 
the intention that we are going to continue opening statements 
and get to the panel. The chairman of the subcommittee is over 
there voting and on his way back, and so we will keep this 
going. In order of appearance, the next Democrat is Mr. Doyle 
of Pennsylvania.
    Mr. Doyle. Mr. Chairman, thank you. And I will say to my 
good friend, Mr. Shimkus, that I know you both have been 
waiting for a year to talk about the congressional baseball 
game, since we beat you last year. But I do want to offer my 
congratulations on a well-pitched----
    Mr. Largent. Will the gentleman yield?
    Mr. Doyle. Yes, I will.
    Mr. Largent. Just to correct the record, we beat ourselves 
last year.
    Mr. Doyle. As we did this year.
    Mr. Chairman, thank you for providing the opportunity to 
discuss the role of nuclear energy and hydroelectric power in 
forming a comprehensive national energy policy. I appreciate 
the fact that our ongoing series of subcommittee hearings have 
been inclusive in nature. To approach the task of crafting a 
viable energy strategy otherwise would be self-defeating, as it 
would inevitably lead to the artificial elevation of one source 
of generation over another. Clearly, the issues involving 
nuclear energy and hydroelectric power demand our full 
attention and merit a truly collaborative effort.
    As is evident in the testimony that will be presented 
today, nuclear energy is experiencing a wave of new interest. 
Much of this interest has been stimulated by concerns stemming 
from the California electricity crisis and the industry's 
success in developing safer and more cost-effective plant 
designs.
    While nuclear energy still has its critics, and we must 
resolve the questions surrounding long-term waste storage, it 
would appear that the benefits of nuclear energy have been on a 
steady rise since the first generation of plants. My concern is 
that we must consider nuclear energy as something more than the 
energy flavor of the month, and provide this energy source with 
the support it requires to play an appropriate role in our 
Nation's energy portfolio.
    This support includes adequate funding for DOE's Office of 
Nuclear Energy, as well as reauthorization of the--Price-
Anderson Act. During our first subcommittee hearing, we heard 
about how my home State of Pennsylvania is achieving greater 
success with its electricity deregulation plan than other 
States, including California.
    An aspect of Pennsylvania's success which was not 
sufficiently highlighted is that nuclear power supplies 37.9 
percent of its power. This is significant, given that nuclear 
power accounts for 20 percent of our national electricity 
production. And given the heightened discussions over carbon 
dioxide emissions, it is also important to note that in just 1 
year nuclear energy avoided carbon dioxide emissions in 
Pennsylvania of 16.1 million metric tons of carbon and 227 
million metric tons since 1974. Not only should we remain 
mindful of the important near-term and long-term role that 
nuclear energy plays, but we cannot afford to be distracted 
from making the necessary commitments to ensuring its continued 
safety and longevity.
    The same can be said of hydroelectric power. Hydroelectric 
power should continue to contribute to help meeting our energy 
needs, and capacity loss should be a cause for concern. 
Hydroelectric power is a growing interest of mine, and I am 
eager to learn more about the wide range of concerns that 
inform the debate on relicensing matters. It is my hope that 
some form of consensus can be reached in this critical area.
    Mr. Chairman, I look forward to hearing the thoughts of our 
witnesses and yield back the balance of my time.
    Mr. Largent. Thank the gentleman. The gentleman from 
California, Mr. Cox, recognized for an opening statement.
    Mr. Cox. Thank you very much, Mr. Chairman. And, of course, 
because we have a vote on the floor, nobody wishes to hear long 
opening statements. I just want to welcome our witnesses and 
tell you how pleased I am that we are focusing on these two 
aspects of our Nation's total power needs, in particular, 
clean, renewable energy in the form of water power.
    It is a shame and a tragedy that hydropower is falling as a 
share of our total power generation in the United States. It is 
likewise very, very good that we are focusing attention on not 
only nuclear energy but on the licensing process, because our 
legislation last year, as you know, authorized a study that has 
determined that it is now taking a very long time to license 
power plants in the hydro area. It is taking nearly 4 years to 
get a license. That oughtn't to be the case.
    The General Accounting Office has told us, as well, that 
the licensing process is now costlier, more complicated and 
difficult than it ever has been. So we have work to do in this 
area, and I am very, very much looking forward to learning from 
our witnesses ways that we can improve in these areas. Thank 
you, Mr. Chairman.
    Mr. Largent. Thank the gentleman. Recognize Mr. John from 
Louisiana for an opening statement.
    Mr. John. Thank you, Mr. Chairman. I, too, want to 
congratulate you on a win, and I want to wish you good luck in 
your future endeavors. I will miss you on the golf course, but 
I will not miss your curve ball. So thank you very much. Where 
did you learn that thing since last year?
    It is really a pleasure to be here today. I want to thank 
the chairman of the subcommittee for holding this hearing in a 
continued series of hearings on energy. I think the chairman of 
the full committee said it best--frankly, there is no more 
important issue in America today than energy. And it is not 
going away. And I think that this committee has made a 
commitment by the series of hearings that we are going to 
address the problems that Americans want us to address in this 
area.
    And this hearing today is a very important component; 
whether it is coal, natural gas-powered electricity generators, 
wind, hydro, nuclear or solar, those are the issues that we 
have to address. They all play an important role in the overall 
scheme of things. I think Mr. Shimkus said it best, that 
diversification is not only good in a portfolio of financial 
instruments, but it is good in whatever we do, from a business 
standpoint or other things that we do in our lives.
    And I think that this hearing today is going to shed light 
on two very important, critical parts and components of a whole 
energy policy that I think we are going to debate. 
Hydroelectricity represents 90 percent of renewable electricity 
generation today.
    So thank you, gentlemen, for coming. I look forward to 
hearing from you, and I thank the chairman for having this 
hearing.
    Mr. Barton. I thank the gentleman from Louisiana. I 
recognize the gentleman from Arizona for an opening statement.
    Mr. Shadegg. I thank the gentleman. Let me begin by 
strongly commending you, Mr. Chairman, for holding this hearing 
on the two preeminent sources of electricity generation, which 
are both inexhaustible and emission-free. While I will focus my 
remarks on hydropower, I strongly support nuclear power and 
believe that we must encourage its further development.
    While this is not a legislative hearing on H.R. 1832, the 
Hydroelectric Licensing and Incentives Act, I would like to 
point out the importance of that legislation to this issue. 
H.R. 1832 will reform the licensing process to ensure that 
existing hydro capacity is not diminished by relicensing and 
will ensure that environmental concerns are fully considered.
    In addition, that legislation has the potential to increase 
the amount of electricity generated by over 21,000 megawatts 
with few, if any, environmental effects. H.R. 1832 does so by 
encouraging the addition of new turbines to existing dams and 
efficiency upgrades in existing hydropower facilities. It will 
not result in the construction of a single new dam but ensures 
that better use is made of the existing dams.
    The core debate over hydropower focuses on whether its 
environmental costs outweigh its benefits. But let us be 
abundantly clear about one fact: Every source of energy has 
costs and benefits. Traditional energy sources have costs and 
benefits but so do renewables. For example, the senior vice 
president of the Audubon Society, David Baird, called the 
windmill project in California a Condor quisinart in September 
1999, because it was on the flight path frequented by the 
endangered California Condors. The fact that a windmill project 
in California may pose a measure of environmental harm does not 
mean that we can dismiss wind power as an energy source. 
Likewise, we cannot dismiss hydropower or nuclear or natural 
gas because they are not pristine.
    For hydropower, the benefits are obvious: zero emissions of 
air pollutants. Hydropower generate electricity without 
emitting a single pound of pollutants. In fact, the 92,000 
megawatts of electricity generated by hydropower today avoid 
the annual emission of 4.75 million tons of sulfur dioxide and 
2 million tons of nitrous oxide by eliminating the need to burn 
345 million tons of coal. There is zero toxic waste. It is 
renewable in nature, and, as I pointed out with a fourth grade 
chart on the hydrologic cycle at the September 1999 electricity 
markup, water is never consumed. It is there and constantly 
circulates and can be used to generate electricity over and 
over again indefinitely.
    Mr. Chairman, some of my colleagues may have some concerns 
about the environmental costs of hydropower, but I believe used 
correctly and viewed properly it can be upgraded. We can add 
more turbines to existing dams. We can improve the efficiency 
of turbines in present dams, and do so without environmental 
costs.
    I commend you for holding this hearing and yield back the 
balance of my time.
    Mr. Barton. We thank the gentleman from Arizona. I want to 
ask--inquire how the trip from DWF to Arizona in the new car 
went?
    Mr. Shadegg. It went very well, Mr. Chairman. We had a nice 
trip.
    Mr. Barton. Where did you spend the night Friday night?
    Mr. Shadegg. In Odessa.
    Mr. Barton. Odessa?
    Mr. Shadegg. Charming Odessa.
    Mr. Barton. Odessa, Texas. How about that. Eckard County. 
Could have called my uncle, aunt and uncle. I have an aunt and 
uncle who live in Odessa.
    Mr. Shadegg. You could have saved me money. I could have 
stayed there.
    Mr. Barton. There you go. They have a nice home with a 
pool.
    Mr. Shadegg. I am sorry you didn't tell me about that.
    Mr. Barton. Well, there may be a reason I didn't tell you 
about that.
    We have several members that had to go vote that wish to 
make an opening statement and have informed the Chair. We are 
going to take a very brief recess. I mean very brief. As soon 
as another member shows up to give an opening statement, we 
will reconvene.
    So the committee is in recess, subject to the call of the 
Chair, which should be within the next 5 minutes.
    [Brief recess.]
    Mr. Barton. The subcommittee will come to order. Are you 
ready--Chairman Meserve is--I think I see him coming into the 
room. So the Chair will recognize Mr. Markey of Massachusetts 
for an opening statement.
    Mr. Markey. Thank you, Mr. Chairman. Mr. Chairman, when I 
was a boy, I am sure Chairman Meserve remembers this, watching 
channel 4 when the Mickey Mouse Club came on. Back in 1956, 
they used to have--Mickey was a big fan of nuclear power, and I 
asked my staff to go pull out what I remembered, which was this 
book that Walt Disney produced in 1956, ``Our Friend, the 
Atom.'' Old Mickey, he was a big fan of it. And he had the 
German scientist, Heinz Hida--I remember he used to have Vern 
von Braun as well, Mickey to explain things to us about--but he 
explained to us how this genie, this nuclear genie was going to 
be coming out of the bottle. Now, it could be a very powerful 
and menacing giant, okay? And we just learned that in 
Hiroshima, but if we all worked together, we could tame the 
nuclear genie, and the nuclear genie would help us--help us.
    And so what Mickey did, which I remembered, was to show us 
how a chain reaction worked. And what they did was the put all 
of these mousetraps with ping pong balls down on the ground, 
and then if one ping pong ball hits two and then two hits four, 
you have something called a chain reaction, really a good 
thing--chain reaction. And so we would watch this, of course, 
in cartoon form as the scientist would explain it to us.
    And then what you would get is you would be able to make 
wishes. And so the first wish would be you would get power from 
nuclear energy, really good. The second wish would be--this is 
really--I am so glad we got this book--you would get food and 
health from nuclear power. And then the third thing that you 
would get is peace. Nuclear meant peace.
    So I watched these shows, and I believed it. We all 
believed it. As a matter of fact, our parents believed in it so 
much that we believed that by, as the book says, by the year 
2000 we won't need oil and gas and coal to generate 
electricity. Isn't that a great vision for our country? I don't 
think they would like that in Texas or Pennsylvania, but that 
was the vision.
    Now, they liked it so much, and it was a fledgling 
industry, a small industry. It needed to get started. It was a 
baby industry, and it was our friend, ``The Atom.'' So they 
couldn't find any insurance for the industry. It was really 
hard. No one wanted to insure them, because notwithstanding 
what they told us, insurance industry people thought it was a 
very dangerous technology. So all of our parents voted for 
people who voted for something called the Price-Anderson Act to 
limit the liability of this industry. Now, the oil and the coal 
and the gas and the hydro industry, they wouldn't come to 
Congress, because they could get insurance. But they said, ``It 
is a baby industry, and you don't understand. It is very safe. 
But once we grow up we won't need that subsidy any more.'' That 
was 44 years ago.
    But somehow in the never-never land of Washington, DC, 
nuclear power never grows up. And this Price-Anderson subsidy 
that we put on the books has been perpetuated as a Mickey Mouse 
program for the last five decades. And now people say, ``It is 
very safe. Don't worry.'' And yet they say, ``We need a Federal 
subsidy.'' For what? Insurance, because the insurance industry, 
the private sector will not give us any insurance.
    So it can't be safe, because we believe in the free market. 
We are not France; we are not Japan. They are socialist 
nations. Socialist nations say, ``We are going to build nuclear 
power, and we are going to protect it in subsidies.'' That is 
socialism. We are capitalism. Capitalism doesn't have the 
Federal Government.
    By requiring dam owners to build passage for fish, protect 
critical riparian habitat, adjust river flows, and provide 
recreational access and opportunity, we can protect and restore 
valuable fisheries, native species diversity, recreational 
amenities and natural ecosystem functions. At the same time, we 
can enhance economic opportunities such as recreation, tourism 
and ecological services. Because original licenses were issued 
before the enactment of modern environmental statutes and prior 
to our understanding of the impacts of dams on river 
ecosystems, virtually none of these dams meets modern 
environmental standards before relicensing.
    If awarded a license, utilities can monopolize a river for 
a half a century with little oversight and no motivation to 
make environmental improvements. We must take this once-in-a-
lifetime chance to set conditions that require hydro operators 
to modernize the way they operate their dams on our rivers.
    In developing the balance of authority in the Federal Power 
Act, Congress determined that some basic environmental 
protections must be afforded at every dam. Expert Federal and 
State resource managers established conditions based on 
substantial evidence. Just as there a ceiling on coal plant 
emissions under the Clean Air Act, there is a floor above which 
FERC can balance license conditions in the public interest.
    Both fish passage and Federal lands protections have been 
part of the licensing process since the enactment of the 
Federal Power Act in 1920. Water quality is a responsibility 
delegated to the States. Section 401 of the act ensures that 
private hydro projects will not interfere with State standards. 
The Supreme Court has confirmed that these standards may be 
numeric or narrative and include chemical, physical and 
biological parameters.
    State and Federal agencies have significant expertise in 
the relicensing area. They work in the field on a specific 
river as opposed to FERC staff who spend most of their time in 
Washington. There is little reason to believe that 
consolidation with FERC would either make the process faster or 
improve the outcomes.
    I will make just a couple of observations on the 603 
report. First, we agree with GAO's conclusion that until FERC 
does a better job collecting data on the cost and timing of its 
process, FERC will not be able to reach informed decisions on 
the need for further administrative reforms or legislative 
changes. This conclusion makes it difficult to rely on any of 
the statisticl information in the 603 report.
    Second, it seems clear that FERC saw this report to 
eliminate shared jurisdiction with other agencies. The 
suggestion on page 6 of the report that Congress should, quote, 
``restore'' the Commission's position as the sole Federal 
decisional authority ignores the history and structure of the 
Federal Power Act since 1920. The Commission has never been the 
sole Federal authority on hydro licenses. And, again, the 
entire report must be viewed in light of this agenda.
    We do believe that further administrative reforms can 
improve the way we license hydropower dams without upsetting 
the existing balance of agency decisionmaking. First, to ensure 
the relicensing process is efficiently implemented, State and 
Federal agencies must have sufficient staff resources and 
training. For example, in the State of Alabama, licenses for 12 
dams on 3 major rivers will expire by 2007. Currently, the Fish 
and Wildlife Service has only one staff person to cover this 
entire area. This situation is not unique.
    Second, collaborative processes should be encouraged. 
Elements of FERC's alternative licencing process should be 
incorporated into FERC's traditional licensing process wherever 
possible. Third, cooperation among FERC and State and Federal 
resource agencies will greatly improve the efficiency of the 
relicensing process. Unfortunately, FERC has been reluctant to 
implement a cooperative environmental analysis structure with 
the other agencies.
    The good news is that relicensing provides significant 
protection to rivers at a low cost to power production. 
According to FERC's own report, relicensing has resulted in 
average per project reduction in generation of only 1.6 
percent. Such few losses in relicensing over the next 10 years 
would result in a 0.04 percent reduction in the Nation's 
overall annual generation. The losses in generation are 
comparable with those caused by installing a scrubber on the 
smokestack of core 5 plant, in fact.
    Being a good environmental steward is a legitimate cost of 
doing business. Unlike other industries, such as offshore oil 
development, mining or timber, hydropower licensees pay nothing 
for the use of public resources--our rivers. They are not 
required to post a bond. After 30 to 50 years, the initial 
capital investment in these projects is fully ammortized. The 
only costs left are basic operation and maintenance, the lowest 
of any electricity source, and environmental protection 
measures. Asking that these dams make some small investment in 
environmental quality after decades of profitable operation is 
a reasonable and minor request. Paying for these changes 
continues to leave hydropower as the cheapest source of 
electricity nationwide.
    subsidizing insurance policies for safe and powerful 
industries.
    Now, here is the interesting end of the story. No new 
nuclear power plants have been successfully since 1973. Why? 
Because it is more expensive than natural gas. It costs about 
$1,700 per kilowatt hour of power generated to build a nuclear 
plant, while the gas plant costs as little as $420 per kilowatt 
hour. And if capital costs are included, nuclear power costs 6 
cents a kilowatt hour compared to 4 cents a kilowatt hour for 
gas or coal. That is 50 percent higher. That is the free 
market. Adam Smith is lying in his grave smiling at all of us. 
Go with it. It is the free market. It is time for our friend, 
``The Atom'' to grow up, move into the free market. And if we 
can't survive, we move on. But if it can't survive, and we cut 
solar and we cut wind and we cut energy conservation, which is 
what the Bush energy plan did, then it is hypocrisy on stilts. 
We help the powerful industry of the people say it is safe and 
yet we don't, at the same time, deal with the reality.
    And, finally, no answer to nuclear waste except the 
industry says, ``I can't believe the Federal Government hasn't 
solved the nuclear waste problem yet.'' The Government. Again, 
where is the free market. They are the ones who told us it was 
safe and they could solve all these problems. That is why our 
parents voted for it. Now they sue us because we haven't solved 
their problem.
    And, finally, I was the chairman of this subcommittee in 
1985 and 1986. Mr. Dingell and I passed a bill on hydro 
relicensing. All we did in 1986, when I was chairman of the 
subcommittee, Mr. Dingell was chairman of the full committee--
was to pass a bill which said we are going to upgrade from 1936 
to 1986 the new values of the environment, of fisheries, of 
other new values that really weren't therein 1936.
    Now, I know that to a larger sense, the Bush energy bill is 
a Trojan horse meant to make it possible for the energy 
industry officials to remove environmental and health care laws 
which they always opposed. But I will tell you that the country 
has come even further in the last 15 years, from 1986, and the 
polling in the New York Times last week makes it clear that on 
every one of these issues the public wants us to ensure that we 
do maintain environmental and health safeguards.
    So I thank you, Mr. Chairman, for the opportunity of 
testifying. I think that this is, without question, an area 
that deserves much closer scrutiny than we are going to be able 
to give it here in a half a day for this and a half a day for 
hydro. Back in 1986, we had 10 hearings just on hydro alone 
before we passed that bill. I think a half a day of hearing on 
such an important subject really doesn't do full justice to the 
importance of the subject. Thank you, Mr. Chairman.
    Mr. Barton. We thank the gentleman from Massachusetts. 
Recognize the gentlelady from California for an opening 
statement.
    Ms. Bono. Thank you, Mr. Chairman. I will pass.
    Mr. Barton. We recognize the gentleman from Ohio, Mr. 
Sawyer, for an opening statement.
    Mr. Sawyer. Thank you, Mr. Chairman. I will try to be 
brief. Nuclear and hydroelectric power provide together some 27 
percent of the electricity that we consume without polluting 
the air. They are important elements in a diversified energy 
policy. Still, nuclear and hydroelectric power both come with 
substantial environmental costs and risks, and it is the 
balance of those benefits and burdens that we weigh today.
    Just three observations. The licensing of hydroelectric 
dams now involves extensive coordination with State and Federal 
authorities. The process of coordination is complex but so are 
the issues that have to be addressed. Second, the Price-
Anderson Act was critical to the establishment of a functioning 
nuclear industry. A lot has changed since that time. And 
perhaps the way in which we approach Price-Anderson should as 
well. It is not something that I think can be done quickly. 
Finally, let me say that with regard to nuclear safety, the 
protocols of transportation, siting of repositories and the 
technology of its storage continue to remain demanding 
technical problems. I hope that we can devote appropriate 
attention to those.
    Finally, Mr. Chairman, I am going to yield to a temptation 
that I swore I was never going to do just on the basis of my 
friend's example. I know how badly it can be done. But this 
morning I just can't resist, and since we don't have any 
television cameras here today, let me conclude by saying, 
``Who's the leader of the club that is made for you and I, E-D-
D-I-E M-A-R-K-E-Y.''
    Thank you so much.
    Mr. Barton. That is actually not too bad.
    Mr. Sawyer. It was made for 7-year-olds to be able to sing.
    Mr. Barton. The gentleman from Ohio, Mr. Strickland, is 
recognized. Did Mr. Largent have an opportunity to make an 
opening statement. Okay, the gentleman from Ohio, Mr. 
Strickland, is recognized for an opening statement.
    Mr. Strickland. Thank you, Mr. Chairman, and I will try to 
be brief. I am glad we are holding this hearing today, but I am 
disappointed that no DOE witness testifying to address 
questions about the Department's responsibilities under Price-
Anderson Act is with us. I would have been particularly 
interested in asking questions of the DOE Office of 
Enforcement, but I was also interested in asking questions of 
the Department's counsel, and I would like to ask for unanimous 
consent to submit questions for the record, if I may.
    Mr. Barton. Without objection.
    Mr. Strickland. Still, I think this is an important hearing 
today on nuclear energy and hydroelectric relicensing, and I 
look forward to the testimony of our witnesses. This committee 
has overseen an aspect of Price-Anderson that does not get 
enough attention, in my judgment: Provisions that authorize the 
Energy Department to issue civil penalties and fines against 
contractors who violate nuclear safety rules.
    In oversight hearings before this committee last year, I 
recall that we learned that the Department of Energy has only 
five or six investigators to police nuclear safety violations 
throughout the DOE complex. This enforcement authority is very 
important to protecting the workers and communities around 
nuclear facilities. It is important for taxpayers as well, 
because DOE contractors' liability is limited under the Price-
Anderson Act. Now, I will say now that I support the 
reauthorization of Price-Anderson, but the question for me is 
whether nuclear safety oversight within the DOE is adequate to 
protect workers, communities and taxpayers.
    It is my understanding that DOE's Office of Enforcement, 
which is responsible for the entire DOE complex relies heavily 
on contractor self-reporting. In fact, I am told by DOE that 
the Price-Anderson coordinator for the Portsmouth, Ohio site is 
located in Oak Ridge, Tennessee. By comparison, it is also my 
understanding that there is at least one full-time, onsite 
resident inspector at major NRC licensed facilities, which are 
also indemnified under Price-Anderson. I would like to see the 
reauthorization of Price-Anderson proceed with a stronger 
health and safety enforcement program at DOE. I have heard from 
too many workers at Portsmouth, Ohio raising questions about 
the process of reporting safety concerns, and I am hopeful that 
as we review the Price-Anderson Act we can strengthen the DOE 
program.
    And, finally, I am looking forward to the testimony of Mr. 
Meserve. I see in his second paragraph of his opening statement 
he says, ``The Commission does not have a promotional role. The 
agency's role,'' and I emphasize the singular use of that word 
``role,'' ``is to ensure the safe application of nuclear 
technology if society elects to pursue the nuclear energy 
option.'' I believe that this Congress gave the NRC an 
additional responsibility to ensure a reliable and domestic 
supply of nuclear fuel for our nuclear power plants. And I 
would like to hear from Mr. Meserve, at my time of questioning, 
why he considers their role to be singular rather than 
multiple, as I believe this Congress intended.
    I yield back my time.
    Mr. Barton. Thank the gentleman from Ohio. I recognize the 
gentleman from Wisconsin, Mr. Barrett, for an opening 
statement.
    Mr. Barrett. Let us roll, Mr. Chairman; I will yield back 
my time.
    Mr. Barton. Seeing no other members present who wish to 
make an opening statement, the Chair would ask unanimous 
consent that all members not present, members of the 
subcommittee, have an opportunity to put their written 
statement in the record. Hearing no objection, so ordered.
    We want to welcome our first panel. We have two 
distinguished representative of the executive branch. We have 
the Chairman of the Nuclear Regulatory Commission, the 
Honorable Richard Meserve, and we appreciate your attendance. 
We also have the Director, the Office of Nuclear Energy, 
Science and Technology at the United States Department of 
Energy, Dr. William Magwood, who is the Director, and we 
welcome you.
    Your statements are in the record in their entirety. We are 
going to welcome the Chairman of the NRC to elaborate for 7 
minutes. Then we will let Dr. Magwood speak for 7 minutes. Then 
we will have some questions.

   STATEMENTS OF RICHARD A. MESERVE, CHAIRMAN, U.S. NUCLEAR 
REGULATORY COMMISSION; AND WILLIAM D. MAGWOOD, DIRECTOR, OFFICE 
 OF NUCLEAR ENERGY, SCIENCE AND TECHNOLOGY, U.S. DEPARTMENT OF 
                             ENERGY

    Mr. Meserve. Mr. Chairman, members of the subcommittee, I 
am pleased to present testimony on behalf of the U.S. Nuclear 
Regulatory Commission.
    Mr. Barton. Put the microphone, Doctor, very close to you, 
because it needs to be as close as possible.
    Mr. Meserve. I am pleased to present testimony on behalf of 
the U.S. Nuclear Regulatory Commission regarding the outlook 
for the construction of new nuclear plants and issues related 
to the reauthorization of the Price-Anderson Act. I have 
submitted a longer statement for the record, and let me make 
just a brief oral statement.
    As the subcommittee knows, the Commission does not have a 
promotional role. The agency's function is to ensure the safe 
application of nuclear technology and materials. The Commission 
recognizes, however, that its regulatory system should not 
establish inappropriate impediments to the application of 
nuclear technology.
    Currently, there are 104 nuclear power plants licensed by 
the Commission to operate in the United States in 31 different 
States. As a group, the plants are operating at high levels of 
safety and reliability and have produced approximately 20 
percent of our Nation's electricity for the past several years.
    Serious industry interest in new construction of nuclear 
power plants in the U.S. has only recently emerged. The 
Commission has already certified three new reactor designs and 
is conducting preliminary reviews associated with other new 
designs, designs which may provide enhanced benefits. In 
addition, licensees have indicated to the NRC that applications 
for early site permits could be submitted in the near future. 
These permits would allow pre-certification of sites for 
possible construction of nuclear power plants.
    To ensure that Commission staff is prepared to evaluate any 
applications to introduce these advanced nuclear reactors, the 
Commission has directed the staff to assess the technical, 
licensing and inspection capabilities that would be necessary 
to review an application for an early site permit, a license 
application or construction permit for a new reactor unit. 
Moreover, the Commission will examine its regulations relating 
to license applications, such as those found in 10 CFR Parts 50 
and 52, to determine whether any enhancements are necessary.
    In addition, in order to confirm the safety of new reactor 
designs and technology, a strong nuclear research program 
should be maintained. A comprehensive evaluation of the 
Commission's research activities has been completed and with 
the benefit of these insights the Commission expects to 
undertake measures to strengthen our research program.
    Also, the NRC has identified areas where new legislation 
would be helpful to eliminate artificial restrictions and 
reduce uncertainty in the licensing process. I would note that 
these matters are included in the legislative proposals that 
the NRC recently provided to this subcommittee.
    Turning to the Price-Anderson Act, the Commission strongly 
and unanimously recommends the act's reauthorization. The act 
provides assurance that if an improbable accident should occur, 
means are provided to compensate affected members of the 
public. Additionally, if Congress intends that nuclear power 
remain a part of the Nation's energy mix, this option should 
not be precluded by the inability of nuclear plant licensees to 
purchase adequate sums of insurance commercially.
    The Commission has previously recommended the doubling of 
the ceiling on the annual retrospective premium, from $10 
million to $20 million per year, per accident, based on the 
then likely scenario that a number of reactors would 
permanently shut down. In light of the heightened interest in 
extending the operating life for most of the currently 
operating power reactors and the emerging interest by some 
power companies and the possible submission of applications for 
new reactors, the Commission does not believe that there is now 
justification for increasing the maximum annual retrospective 
premium above the current $10 million level.
    Thank you, Mr. Chairman. I would be pleased to answer any 
questions that you or other members of the subcommittee may 
have.
    [The prepared statement of Richard A. Meserve follows:]
   Prepared Statement of Richard A. Meserve, Chairman, U.S. Nuclear 
                         Regulatory Commission
                              introduction
    Mr. Chairman, members of the Subcommittee, it is a pleasure to 
appear before you today.
    As you know, the NRC's mission is to ensure the adequate protection 
of public health and safety, to promote the common defense and 
security, and to protect the environment in the application of nuclear 
technology for civilian use. The Commission does not have a promotional 
role--rather, the agency seeks to ensure the safe application of 
nuclear technology and materials.
    The Commission's highest priority is to fulfill its fundamental 
mission of ensuring adequate protection of public health and safety. 
The Commission also recognizes, however, that its regulatory system 
should not establish inappropriate impediments to the application of 
nuclear technology and materials. Many of the Commission's initiatives 
over the past several years have sought to maintain or enhance safety 
while simultaneously improving the efficiency and effectiveness of our 
regulatory system. We believe the Commission's most recent legislative 
proposals would enhance safety and improve our regulatory system even 
further and are pleased to see that many of our proposals have been 
incorporated into the bills before this Congress. The Commission also 
recognizes that its decisions and actions as a regulator influence the 
public's perception of the NRC and ultimately the public's perception 
of the safety of nuclear technology. For this reason, the Commission's 
primary performance goals also include increasing public confidence.
                               background
    Currently there are 104 nuclear power plants licensed by the 
Commission to operate in the United States in 31 different states. As a 
group, they are operating at high levels of safety and reliability. 
(See Charts on Attachments 1 and 2.)
    These plants have produced approximately 20 percent of our Nation's 
electricity for the past several years and are operated by about 40 
different companies. In 2000, these nuclear power plants produced a 
record 755 thousand gigawatt-hours of electricity. (See Graph on 
Attachment 3.)
Improved Reactor Licensee Efficiencies (Increased Capacity Factors)
    The Nation's nuclear electricity generators have worked over the 
past 10 years to improve nuclear power plant performance, reliability, 
and efficiency. According to the Nuclear Energy Institute, the improved 
performance of the U.S. nuclear power plants since 1990 is equivalent 
to placing 23 new 1000 MWe power plants on line. The average capacity 
factor for U.S. light water reactors was 88 percent in 2000, up from 63 
percent in 1989.1 (See Table on Attachment 3.) The 
Commission has focused on ensuring that safety is not compromised as a 
result of these industry efforts. The Commission seeks to carry out its 
regulatory responsibilities in an effective and efficient manner so as 
not to impede industry initiatives inappropriately.
---------------------------------------------------------------------------
    \1\ Capacity factor is the ratio of electricity generated, for the 
period of time considered, to the amount of energy that could have been 
generated at continuous full-power operation during the same period.
---------------------------------------------------------------------------
Electric Industry Restructuring
    As you are aware, the nuclear industry is undergoing a period of 
remarkable change. The industry is in a period of transition in several 
dimensions, probably experiencing more rapid change than in any other 
period in the history of civilian nuclear power. As economic 
deregulation of the electric power industry has proceeded, the 
Commission has seen significant restructuring among its licensees and 
the start of the consolidation of nuclear generating capacity among a 
smaller group of operating companies. This change is due, in part, to 
an industry that has achieved gains in both economic and safety 
performance over the past decade and thus is able to take advantage of 
the opportunities presented by industry restructuring.
                       price-anderson act renewal
    Legislation will be needed to extend the Price-Anderson Act. The 
Act, which expires on August 1, 2002, establishes a framework that 
provides assurance that adequate funds are available in the event of a 
nuclear accident and sets out the process for consideration of nuclear 
claims. Without the framework provided by the Act, private-sector 
participation in nuclear power would be discouraged by the risk of 
large liabilities.
    I am here to deliver the strong and unanimous recommendation of the 
Commission that the Price-Anderson Act be renewed with only minor 
modifications. But I would like to preface my statement of that 
position with the reminder that the Commission's primary concern is 
public health and safety. Our mission is to ensure the safe use of 
nuclear power. We can look back on a successful history of safe 
operation and intend to exercise vigilance to maintain or improve on 
this record of safety. Nonetheless, it remains important to assure that 
if a highly improbable accident should occur, the means are provided to 
care for the affected members of the public. It is also important, if 
the Congress intends that nuclear power remain a part of the Nation's 
energy mix, that this option is not precluded by the inability of 
nuclear plant licensees to purchase adequate amounts of commercial 
insurance.
    As you know, Congress first enacted the Price-Anderson Act in 1957, 
nearly a half century ago. Its twin goals were then, as now:

(1) to ensure that adequate funds would be available to the public to 
        satisfy liability claims in a catastrophic nuclear accident; 
        and
(2) to permit private sector participation in nuclear energy by 
        removing the threat of potentially enormous liability in the 
        event of such an accident.
    On original passage the Congress provided a term during which the 
Commission could extend Price-Anderson coverage to new licensees and 
facilities. When that term expired, the Congress then, and repeatedly 
since, has decided that the Nation would be served by extending the 
Price-Anderson Act so that new coverage would be available for newly 
licensed reactors. This action preserved the option of private sector 
nuclear power and assured protection of the public. At this point, in 
order to avoid confusion, I should note that Price-Anderson coverage 
for NRC licensees is granted for the lifetime activities of the covered 
facility and does not ``expire'' in 2002. Thus, in any event, Price-
Anderson coverage with respect to already licensed nuclear power 
reactors will continue and will afford prompt and reasonable 
compensation for any liability claims resulting from an accident at 
those facilities.
    While Congress has amended the Price-Anderson Act from time to 
time, it has done so cautiously so as to avoid upsetting the delicate 
balance of obligations between operators of nuclear facilities and the 
United States government as representative of the people.
    Perhaps the most significant amendments to date were those that 
effectively removed the United States government from its obligation to 
indemnify any reactor up to a half billion dollars and that placed the 
burden on the nuclear power industry. Congress achieved this by 
mandating in 1975 that each reactor greater than 100 MWe, essentially 
every reactor providing power commercially, contribute $5 million to a 
retrospective premium pool if and only if there were damages from a 
nuclear incident that exceeded the maximum commercial insurance 
available. The limit of liability was then $560 million. Government 
indemnification was phased out in 1982 when the potential pool and 
available insurance reached that sum.
    In 1988, Congress increased the potential obligation of each 
reactor in the event of a single accident at any reactor to $63 million 
(to be adjusted for inflation). The maximum liability insurance 
available is now $200 million. When that insurance is exhausted each 
reactor licensee must pay into the pool up to $83.9 million, as 
currently adjusted for inflation, if needed to cover damages in excess 
of the sum covered by insurance. The $83.9 million is payable in annual 
installments not to exceed $10 million. Today, the commercial insurance 
and the reactor pool together would make available over $9 billion to 
cover any personal or property harm to the public caused by an 
accident.
    In 1998, as mandated by Congress, the Nuclear Regulatory Commission 
submitted to the Congress its report on the Price-Anderson system. The 
report included a concise history and overview of the Price-Anderson 
Act and its amendments as well as an update on developments and events 
pertaining to nuclear insurance and indemnity in the last decade. 
Congress had also required the NRC to address various topics that 
relate to and reflect on the need for continuation or modification of 
the Act: the condition of the nuclear industry, the state of knowledge 
of nuclear safety, and the availability of private insurance.
    After considering pertinent information, the Commission considered 
what its recommendations should be. It concluded then that it should 
recommend that Congress renew the Price-Anderson Act because it 
provides a valuable public benefit by establishing a system for the 
prompt and equitable settlement of public liability claims resulting 
from a nuclear accident. That, as I said at the outset, remains today 
the strongly held position of the Commission.
    Having noted that substantial changes in the nuclear power industry 
had begun and could continue, the Commission believed it would be 
prudent to recommend renewal for only ten years rather than the 15-year 
period that had been adopted in the last reauthorization so that any 
significant evolution of the industry could be considered when the 
effects of ongoing changes would be clearer. Notwithstanding that view, 
the Commission recommended that the Congress consider amending the Act 
to increase the maximum annual retrospective premium installment that 
could be assessed each holder of a commercial power reactor license in 
the event of a nuclear accident.
    The NRC suggested that consideration be given to doubling the 
ceiling on the annual installment from the current sum of $10 million 
to $20 million per year per accident. The total allowable retrospective 
premium per reactor per accident was to remain unchanged at the 
statutory ``$63 million'' adjusted for inflation. (It is now $83.9 
million as so adjusted). The Commission recommended consideration of an 
increase to $20 million because it then appeared likely that in the 
coming decade a number of reactors would permanently shut down. The 
effect of these shutdowns would have been to reduce the number of 
contributors to the reactor retrospective pool. Fewer contributors 
would, in turn, reduce the funds that, in the event of a nuclear 
accident, would become available each year to compensate members of the 
public for personal or property damage caused by an accident. 
Increasing the maximum annual contribution available from each reactor 
licensee would provide continuing assurance of ``up front'' money to 
assist the public with prompt compensation until Congress could 
consider whether to enact additional legislation providing further 
relief, should it be needed.
    Recent events have led the Commission to review its 1998 
recommendations and to reevaluate its recommendation that Congress 
consider increasing the annual installment to $20 million. The outlook 
for the future of nuclear power has changed from pessimistic in 1998 to 
more optimistic in 2001. There is now a heightened interest in 
extending the operating life for most, if not all, of the 104 currently 
licensed power reactors, and some power companies are now examining 
whether they wish to submit applications for new reactors or complete 
construction of reactors that had been deferred. As a result, the 
Commission does not believe that there is now justification for raising 
the maximum annual retroactive premium above the current $10 million 
level.
  initiatives in the area of current reactor and materials regulation
Reactor License Transfers
    One of the more immediate results of the economic deregulation of 
the electric power industry has been the development of a market for 
nuclear power plants as capital assets. As a result, the Commission has 
seen a significant increase in the number of requests for approval of 
license transfers. These requests have increased from a historical 
average of about two or three per year, to 20-25 in the past two years.
    The Commission seeks to ensure that our reviews of license transfer 
applications, which focus on adequate protection of public health and 
safety, are conducted efficiently. These reviews sometimes require a 
significant expenditure of staff resources to ensure a high quality and 
timely result. Our legislative proposal to eliminate foreign ownership 
review could help to further streamline the process, while retaining 
the ability to address any associated issues that pertain to common 
defense and security. To date, the Commission believes that it has been 
timely in these transfers. For example, in CY 2000, the staff reviewed 
and approved transfers in periods ranging from four to eight months, 
depending on the complexity of the applications. The Commission will 
strive to continue to perform at this level of proficiency.
Reactor License Renewals
    Another result of the new economic conditions is an increasing 
interest in license renewal that would allow plants to operate beyond 
the original 40-year term. That maximum original operating term, which 
for many plants was established in the Atomic Energy Act (AEA), did not 
reflect a limitation that was determined by engineering or scientific 
considerations, but rather was based on financial and antitrust 
concerns. The Commission now has the technical bases and experience on 
which to make judgments about the potential useful life and safe 
operation of facilities and is addressing the question of extensions 
beyond the original 40-year term.
    The focus of the Commission's review of license renewal 
applications is on maintaining plant safety, with the primary concern 
directed at the effects of aging on important systems, structures, and 
components. Applicants must demonstrate that they have identified and 
can manage the effects of aging so as to maintain an acceptable level 
of safety during the period of extended operation.
    The Commission has now renewed the licenses of plants at three 
sites for an additional 20 years: Calvert Cliffs in Maryland, Oconee in 
South Carolina, and Arkansas Nuclear 1 in Arkansas, comprising a total 
of six units. The thorough reviews of these applications were completed 
ahead of schedule, which is indicative of the care exercised by 
licensees in the preparation of the applications and the planning and 
dedication of the Commission staff. Applications for units from two 
additional sites--Hatch in Georgia and Turkey Point in Florida--are 
currently under review. Also, we recently received application from 
four additional sites; Surry and North Anna in Virginia, Catawba in 
South Carolina, and McGuire in North Carolina, comprising a total of 
eight units. As indicated by our licensees, many more applications for 
renewal are anticipated in the coming years.
    Although the Commission has met or exceeded the projected schedules 
for the first reviews, it seeks to have the renewal process be as 
effective and efficient as possible. The extent to which the Commission 
is able to sustain or improve on our performance depends on the rate at 
which applications are actually received, the quality of the 
applications, and the staff resources available to complete the review 
effort. The Commission recognizes the importance of license renewal and 
is committed to providing high-priority attention to this effort. As 
you know, the Commission encourages early notification by licensees of 
their intent to submit license renewal applications in order to allow 
adequate planning of demands on staff resources. The Commission is 
committed to maintaining the quality of its safety reviews.
Reactor Plant Power Uprates
    In recent years, the Commission has approved numerous license 
amendments that permit licensees to make relatively small power 
increases or uprates. Typically, these increases have been 
approximately two percent to seven percent. These uprates, in the 
aggregate, resulted in adding approximately 2000 MWe or the equivalent 
of two new 1000 MWe power plants.
    The NRC is now reviewing six license amendment requests for larger 
power uprates. These requests are for Boiling Water Reactors (BWR's) 
and are for uprates of 15 percent to 20 percent. (There are two primary 
designs for operating light water reactors: Boiling Water Reactors and 
Pressurized Water Reactors.) While the staff has not received requests 
for additional uprates beyond these six, some estimates indicate that 
as many as 22 BWR's may request uprates in the 15 percent to 20 percent 
range. These uprates, if allowed, could add approximately 3000 to 4500 
MWe to the grid.
    Approvals for uprates are granted only after a thorough evaluation 
by the NRC staff to ensure safe operation of the plants at the higher 
power. Plant changes and modifications are necessary to support a large 
power uprate, and thus require significant financial investment by the 
licensee. While the NRC does not know the number of uprate requests 
that will be received, the staff is evaluating ways to streamline the 
review process. We would note that power uprates of five percent or 
more are considered by the NRC staff to be substantial and to require 
significant technical review and analysis. As with license renewals, 
the Commission encourages early notification by licensees, in advance 
of their applications for uprates, in order to allow adequate planning 
of demands on staff resources.
High-Level Waste Storage/Disposal (Spent Fuel Storage)
    In the past several years, the Commission has responded to numerous 
requests to approve spent fuel cask designs and independent spent fuel 
storage installations for onsite dry storage of spent fuel. These 
actions have provided an interim approach pending implementation of a 
program for the long-term disposition of spent fuel. The ability of the 
Commission to review and approve these requests has provided the needed 
additional onsite storage of spent nuclear fuel, thereby avoiding plant 
shutdowns as spent fuel pools reach their capacity. The Commission 
anticipates that the current lack of a final disposal site will result 
in a large increase in on-site dry storage capacity during this decade.
    The NRC staff is currently reviewing an application for an 
Independent Spent Fuel Storage Installation on the reservation of the 
Skull Valley Band of Goshute Indians in Utah. This application is 
currently subject to an ongoing adjudicatory hearing before an Atomic 
Safety and Licensing Board.
    We continue to prepare for a potential license application from DOE 
for a proposed high-level waste geologic repository at Yucca Mountain. 
These efforts include rulemaking to codify recently set radiation 
standards for the proposed repository and periodic technical exchange 
meetings between NRC and DOE staff which are open to the public.
    We are also revising our requirements for the transportation of 
spent fuel and radioactive material to make them more risk-informed and 
consistent with international standards. We are doing this in 
partnership with the Department of Transportation, which will 
simultaneously revise its own rule in this area.
Risk-Informing the Commission's Regulatory Framework
    The Commission also is in a period of dynamic change as the agency 
moves from a prescriptive, deterministic approach toward a more risk-
informed and performance-based regulatory paradigm. Improved 
probabilistic risk assessment techniques combined with more than four 
decades of accumulated experience with operating nuclear power reactors 
has led the Commission to recognize that some regulations may not 
achieve their intended safety purpose and may not be necessary to 
provide adequate protection of public health and safety. Where that is 
the case, the Commission has determined it should revise or eliminate 
the requirements. On the other hand, the Commission is prepared to 
strengthen our regulatory system where risk considerations reveal the 
need.
    Perhaps the most visible aspect of the Commission's efforts to 
risk-inform its regulatory framework is the new reactor oversight 
process. The process was initiated on a pilot basis in 1999 and fully 
implemented in April 2000. The new process was developed to focus 
inspection effort on those areas involving greater risk to the plant 
and thus to workers and the public, while simultaneously providing a 
more objective and transparent process. Although the Commission 
continues to work with its stakeholders to assess the effectiveness of 
the revised oversight process, the feedback received from industry and 
the public is favorable.
                           future activities
Scheduling and Organizational Assumptions Associated with New Reactor 
        Designs
    While improved performance of operating nuclear power plants has 
resulted in significant increases in electrical output, significant 
increased demands for electricity will need to be addressed by 
construction of new generating capacity of some type. Serious industry 
interest in new construction of nuclear power plants in the U.S. has 
only recently emerged. As you know, the Commission has already 
certified three new reactor designs pursuant to 10 CFR Part 52. These 
designs include General Electric's Advanced Boiling Water Reactor, 
Westinghouse's AP-600 and Combustion Engineering's System 80+ (now 
owned by Westinghouse). Because the Commission has certified these 
designs, an application for a combined construction permit and 
operating license under Part 52 may reference one of these approved 
designs. Licensees have also indicated to the NRC that applications for 
early site permits could be submitted in the near future. These permits 
would allow pre-certification of sites for possible construction of 
nuclear power plants.
    In addition to the three already certified advanced reactor 
designs, there are new nuclear power plant technologies, such as the 
Pebble Bed Modular Reactor, which some believe can provide enhanced 
safety, improved efficiency, and lower costs, as well as other 
benefits. To ensure that the NRC staff is prepared to evaluate any 
applications to build these advanced nuclear reactors, the Commission 
recently directed the staff to assess the technical, licensing, and 
inspection capabilities that would be necessary to review an 
application for an early site permit, a license application, or 
construction permit for a new reactor unit. This will include the 
capability to review the designs for Generation III+ or Generation IV 
light water reactors, including the Westinghouse AP-1000, the Pebble 
Bed Modular Reactor, General Atomics' Gas Turbine Modular Helium 
Reactor, and Westinghouse's International Reactor Innovative and Secure 
(IRIS). In addition to assessing its capability to review the new 
designs, the Commission will also examine its regulations relating to 
license applications, such as 10 CFR Parts 50 and 52, in order to 
identify whether any enhancements are necessary. We also recently 
established the Future Licensing Project Organization in order to 
prepare for and manage future reactor and site licensing applications.
    In order to confirm the safety of new reactor designs and 
technology, the Commission believes that a strong nuclear research 
program should be maintained. A comprehensive evaluation of the 
Commission's research program has been completed with assistance from a 
group of outside experts and from the Advisory Committee on Reactor 
Safeguards. With the benefit of these insights, the Commission expects 
to undertake measures to strengthen our research program.
Human Capital
    Linked to these technical and regulatory assessments, the 
Commission is reviewing its human capital to ensure that the 
appropriate professional staff are available for the Commission to 
fulfill its traditional safety mission, as well as any new regulatory 
responsibilities in the area of licensing new reactor designs.
    In some mission critical offices within the Commission, nearly 25 
percent of the staff are eligible to retire today. As with many Federal 
agencies, it is becoming increasingly difficult for the Commission to 
hire personnel with the knowledge, skills, and abilities to conduct the 
safety reviews, licensing, research, and oversight actions that are 
essential to our safety mission. Moreover, the number of individuals 
with the technical skills critical to the achievement of the 
Commission's safety mission is rapidly declining in the Nation, and the 
educational system is not replacing them. The NRC staff has taken 
initial steps to address this situation, and as a result, is now 
systematically seeking to identify future staffing needs and to develop 
strategies to address the gaps. It is apparent, however, that the 
maintenance of a technically competent staff will require substantial 
effort for an extended time. (The various energy bills properly give 
attention to such matters.)
Budget
    The NRC has submitted a proposed bill for authorization of 
appropriations for Fiscal Year 2002. We respectfully request the 
Committee's support for our budget request. However, as I mentioned 
earlier, serious industry interest in new construction of nuclear power 
plants has only recently emerged. Therefore, our budget proposal now 
before Congress does not include resources to prepare for this 
initiative.
                         legislative proposals
    The Commission has identified in its legislative proposals areas 
where new legislation would be helpful to eliminate artificial 
restrictions and to reduce the uncertainty in the licensing process. 
These changes would maintain safety while increasing flexibility in 
decision-making. Although those changes would have little or no 
immediate impact on the Nation's electrical supply, they would help 
establish the context for consideration of nuclear power by the private 
sector without any compromise of public health and safety or protection 
of the environment.
          Commission antitrust reviews of new reactor licenses could be 
        eliminated. As a result of the growth of Federal antitrust law 
        since the passage of the AEA, the Commission's antitrust 
        reviews are redundant of the reviews of other agencies. The 
        requirement for Commission review of such matters, which are 
        distant from the Commission's central expertise, should be 
        eliminated.
          Elimination of the ban on foreign ownership of U.S. nuclear 
        plants would be an enhancement since many of the entities that 
        are involved in electrical generation have foreign 
        participants, thereby making the ban on foreign ownership 
        increasingly problematic. The Commission has authority to deny 
        a license that would be inimical to the common defense and 
        security, and thus an outright ban on all foreign ownership is 
        unnecessary.
    With the strong Congressional interest in examining energy policy, 
the Commission is optimistic that there will be a legislative vehicle 
for making these changes and thereby for updating the AEA. Indeed, I 
would note that these matters are included in the legislative proposals 
that NRC recently provided to this Committee.
                                summary
    The Commission has long been, and will continue to be, active in 
concentrating its staffs efforts to ensure the adequate protection of 
public health and safety, to promote the common defense and security, 
and to protect the environment in the application of nuclear technology 
and materials for civilian use. Within the bounds of those statutory 
mandates, however, the Commission is mindful of the need: (1) to reduce 
unnecessary burdens, so as not to inappropriately inhibit any renewed 
interest in nuclear power; (2) to maintain open communications with all 
of its stakeholders, in order to seek to ensure the full, fair, and 
timely consideration of issues that are brought to our attention; and 
(3) to continue to encourage its highly qualified staff to strive for 
increased efficiency and effectiveness, both internally and in our 
dealings with all of the Commission's stakeholders.
    Thank you Mr. Chairman, I welcome your comments and questions.
    [GRAPHIC] [TIFF OMITTED] T3738.001
    
    [GRAPHIC] [TIFF OMITTED] T3738.002
    
    [GRAPHIC] [TIFF OMITTED] T3738.003
    

                          U.S. Commercial Nuclear Power Reactor Average Capacity Factor
----------------------------------------------------------------------------------------------------------------
                                                      Number of Reactors
                                                          Licensed to       Average Annual     Percent  of Total
                                                            Operate         Capacity Factor          U.S.
----------------------------------------------------------------------------------------------------------------
1989................................................                109                  63                19.0
1990................................................                111                  68                20.5
1991................................................                111                  71                21.7
1992................................................                110                  71                22.2
1993................................................                109                  73                21.2
1994................................................                109                  75                22.1
1995................................................                109                  79                22.5
1996................................................                110                  77                21.9
1997................................................                104                  74                20.1
1998................................................                104                  78                22.6
1999................................................                104                  86                22.9
2000................................................                104                  88                23.4
----------------------------------------------------------------------------------------------------------------


    Mr. Barton. We thank you, Doctor, and appreciate your 
attendance. We now would like to hear from Dr. Magwood of DOE.

                 STATEMENT OF WILLIAM D. MAGWOOD

    Mr. Magwood. Thank you, Mr. Chairman. I am Bill Magwood. I 
am Director of the DOE Office of Nuclear Energy, Science and 
Technology. It is a great pleasure to appear before this 
subcommittee today. And I would like to echo the comments of 
some of the members of the subcommittee in recognizing your 
efforts in pushing these issues forward.
    I believe that looking at both hydro and nuclear together, 
there were many people wondering why those two were important 
issues as a hearing. But one of the members did also point out 
that together they are almost one-third of our electricity 
supply, and it is one-third of our electricity supply that is 
generating electricity reli-
ably and economically without emitting greenhouse gases or any 
other pollutants.
    A few years ago, I was on the Hill talking to many Members 
of Congress and many staffers about nuclear research and 
nuclear power, and I was told almost unanimously that, ``Well, 
nuclear power is not going to survive restructuring of electric 
utility industry; nuclear power is too expensive; we don't have 
a solution for waste, so, there is no point in worrying about 
nuclear power anymore.'' It is gratifying to be up here a few 
years later and to hear the story has entirely changed.
    With the new administration, a new vice president, we have 
seen senior officials in the administration here and on 
national television saying very clearly that the United States 
should build new nuclear power plants. The new national energy 
policy states very clearly that nuclear power needs to be a 
serious option and that we need to pursue reauthorization of 
Price-Anderson as part of that, as well as a range of other 
licensing activities and other research activities. Clearly, 
the Department fully supports that.
    We believe that nuclear does have a bright future in the 
United States, and I would say that over the last year, I have 
had conversations with senior officials in the utility industry 
who are looking very closely at the economics, and they are 
capitalists, Mr. Markey. They are looking at the numbers, and 
they are saying, ``Yes, we think that the business case is 
getting closer and closer all the time, especially as 
electricity prices increase nationwide. We don't expect that we 
are going to see nuclear power plants just because the 
government says it is time to build nuclear power, but we are 
going to see nuclear power plants, because industry has made a 
judgment that it is time for nuclear to come back.''
    There are things the government does have to do, and I have 
already mentioned reauthorization of Price-Anderson, which we 
support. I would echo something that Mr. Dingell mentioned, 
which is that there are some issues such as the issue of how to 
provide coverage to small reactors versus large reactors that 
probably needs to be considered. It is a very important issue 
for new technology, some of which I think you will hear about 
later today from other witnesses.
    But the government also does need to deal with the nuclear 
waste problem. I think it is important to always point out that 
utility ratepayers have been paying the freight for the nuclear 
waste program at the Department of Energy. They have paid 
billions of dollars into the Nuclear Waste Fund, and I think 
that the progress that we are making now, which has come with 
great difficulty and probably a lot longer than anyone thought 
when the Nuclear Waste Policy Act was first passed, is 
important progress. We are hoping that late this year we will 
be in the position to issue a site suitability report.
    Finally, I think that it is important to recognize that we 
are not just talking about current reactors and relicensing, as 
important as that is. We are also talking about future reactors 
that can be built later in this decade. We have assembled a 
panel of experts, through our Nuclear Energy Research Advisory 
Committee--I think you will hear some of that today, who have 
made draft recommendations that there are actions the 
government can take to show that some of the unproven licensing 
procedures the NRC has developed should be demonstrated to pave 
the way for new reactors. But also we believe that there is 
some research that should be done in the longer-term future for 
new types of reactors.
    I appreciate the opportunity to appear before this 
subcommittee and I would be happy to answer your questions. We 
also look forward to working with this subcommittee as you mark 
up legislation.
    Mr. Barton. Thank you, Doctor. The Chair would recognize 
himself for the first 5-minute question period.
    Dr. Magwood, I am told that DOE did prepare testimony, 
written testimony on Price-Anderson. Is that true?
    Mr. Magwood. That is true. The Deputy General Counsel, Eric 
Fygi, I believe, has submitted Price-Anderson related testimony 
for the record.
    Mr. Barton. And that is my--if you have prepared written 
testimony on Price-Anderson, we would appreciate it if it would 
be provided for the record.
    Mr. Magwood. Absolutely.
    Mr. Barton. Okay.
    [The prepared statement of Eric Fygi follows:]
   Prepared Statement of Eric J. Fygi, Deputy General Counsel, U.S. 
                          Department of Energy
    Thank you, Mr. Chairman and members of the Committee, for the 
opportunity to discuss renewal of the Price-Anderson Act (Act) to 
provide liability coverage for Department of Energy nuclear activities. 
This is an opportune time to discuss renewal of this important 
indemnification scheme in light of the recommendation in the Report of 
the National Energy Policy Development Group that the Price-Anderson 
Act be extended. The Administration welcomes your attention to this 
important issue for the future of nuclear energy in the United States 
and looks forward to working with you to finish work on it this year.
    In response to a question during confirmation hearings, Secretary 
Spencer Abraham stated that he agreed with the recommendations in the 
Department of Energy Report to Congress on the Price-Anderson Act (DOE 
Price-Anderson Report) (1999) that supported continued coverage of DOE 
nuclear activities under the Price-Anderson Act without any substantial 
changes. Secretary Abraham stated that indemnification of DOE 
contractors under the Price-Anderson Act was essential to the 
achievement of DOE's statutory missions in the areas of national 
security, energy policy, science and technology, and environmental 
management. Further, he indicated that he looked forward to working 
closely with members of both parties and with individuals from inside 
and outside government to secure the early renewal of the Price-
Anderson Act.
    Based upon over 40 years of experience, DOE believes that renewal 
of the Price-Anderson Act is in the best interests of the government, 
its covered contractors, subcontractors and suppliers, and the public. 
In 1957, Congress enacted the Price-Anderson Act as an amendment to the 
Atomic Energy Act of 1954 to encourage the development of the nuclear 
industry and to ensure prompt and equitable compensation in the event 
of a nuclear incident. Specifically, the Price-Anderson Act established 
a system of financial protection for persons who may be injured by a 
nuclear incident by cutting through tort defenses of the intermediary 
licensees and contractors. With respect to activities conducted for 
DOE, the Price-Anderson Act achieves these objectives by requiring DOE 
to include an indemnification in each contract that involves the risk 
of a nuclear incident. This DOE indemnification: (1) provides omnibus 
coverage of all persons who might be legally liable; (2) indemnifies 
fully all legal liability up to the statutory limit on such liability 
(currently $9.43 billion for a nuclear incident in the United States); 
(3) covers all DOE contractual activity that might result in a nuclear 
incident in the United States; (4) is not subject to the usual 
threshold limitation on the availability of appropriated funds; and (5) 
is mandatory and exclusive. Through these means the public is afforded 
a streamlined means of compensation for any injury from a nuclear 
incident.
    DOE is convinced that the indemnification provisions applicable to 
its activities should be continued without any substantial change 
because it is essential to DOE's ability to fulfill its statutory 
missions involving defense, national security and other nuclear 
activities; it provides proper protection for members of the public 
that might be affected by DOE's nuclear activities; it is cost-
effective; and there are no satisfactory alternatives.
    Elimination of the DOE indemnification would have a serious effect 
on the ability of DOE to perform its missions. Without indemnification, 
DOE believes that it would be difficult to obtain responsible, 
competent contractors, subcontractors, suppliers and other entities to 
carry out work involving nuclear materials. Other means of 
indemnification have practical and legal limitations, do not provide 
automatic protection and depend on cumbersome contractual arrangements.
    Private insurance generally would not be available for many DOE 
activities. Even when available, it would be extremely expensive, 
limited, and restricted. Because the DOE indemnification operates as a 
form of self-insurance for claims resulting from nuclear incidents, DOE 
incurs no out-of-pocket costs for insurance. Moreover, thus far, it has 
not paid out significant amounts for claims pursuant to its 
indemnification authority.
    In the 1999 DOE Price-Anderson Report, DOE recommended that the Act 
continue to provide indemnification for DOE nuclear activities without 
substantial change. DOE made five recommendations:
DOE Price-Anderson Report Recommendation 1. The DOE indemnification 
        should be continued without any substantial change.
    DOE primarily recommended that the Act be renewed without 
substantial change. The Act should extend DOE's responsibility to 
indemnify its contractors as well as extend the NRC's authority to 
indemnify its licensees. Under the current Act, the authority of DOE 
and the NRC to indemnify is scheduled to expire on August 1, 2002.
DOE Price-Anderson Report Recommendation 2. The amount of the DOE 
        indemnification should not be decreased.
    DOE recommended in its report that this Act should not decrease the 
DOE amount of indemnification below the current amount of $9.43 
billion. In the current Act, DOE's indemnity amount is pegged to the 
NRC aggregate amount and to the NRC inflation adjustment of that 
amount. DOE believes the continuation of an amount at least this high 
is essential to assure the public that prompt and equitable 
compensation will be available in the event of a nuclear incident and 
its consequences, as well as a precautionary evacuation. DOE also 
recommended that the amount of indemnification for nuclear incidents 
outside of the United States be increased from $100 million to $500 
million.
DOE Price-Anderson Report Recommendation 3. The DOE indemnification 
        should continue to provide broad and mandatory coverage of 
        activities conducted under contract for DOE.
    DOE recommended that the Act continue to provide broad and 
mandatory coverage of contractual activities conducted for DOE. The 
protection afforded by the DOE indemnification should not be dependent 
on factors, some of them predictive, such as whether an activity (1) 
involves the risk of a substantial nuclear incident, (2) takes place 
under a procurement contract (as opposed to some other contractual 
relationship that might not be so denominated), or (3) is undertaken by 
a DOE contractor pursuant to a license from the Nuclear Regulatory 
Commission (NRC). Limitations based on such factors would likely render 
uncertainty as to public protection and be cumbersome to administer 
without achieving any significant cost savings.
DOE Price-Anderson Report Recommendation 4. DOE should continue to have 
        authority to impose civil penalties for violations of nuclear 
        safety requirements by for-profit contractors, subcontractors 
        and suppliers.
    DOE recommended that the Act continue DOE's authority to impose 
civil penalties for violations of nuclear safety requirements and that 
nonprofit entities should remain exempt from civil penalties.
    Concerning the exemption of nonprofit entities from civil 
penalties, we recently testified that the Department could generally 
support in concept the limitation of the nonprofit exemption up to the 
amount of the contractor's or subcontractor's fee paid. I pointed out 
several concerns, including the definition of a contractor's fee, the 
time period over which the fee is paid, the effective date of 
application to contracts entered into after the date of enactment, and 
the repeal of the automatic remission. Should this concept be pursued 
these concerns should be addressed carefully in crafting a legislative 
implementation of them.
    I also noted in my testimony that in the information security area, 
Congress decided, following issuance of the DOE Price-Anderson Report, 
to impose potential liability for civil penalties on nonprofit 
organizations. For violations of regulations relating to the 
safeguarding and security of Restricted Data, the National Defense 
Authorization Act for Fiscal Year 2000 made nonprofit contractors, 
subcontractors, and suppliers subject to civil penalties not to exceed 
the total amount of fees paid by the DOE to each such entity in a 
fiscal year. I stated that a similar limitation of the exemption, up to 
the amount of the contractor's or subcontractor's fee paid, also would 
be a feasible approach for violations of DOE's nuclear safety 
regulations. The limitations in this legislation, however, should be 
structured to yield uniform standards for decision.
Recommendation 5. The Convention on Supplementary Compensation for 
        Nuclear Damage should be ratified and conforming amendments to 
        the Price-Anderson Act should be adopted.
    DOE has examined the potential effects on the Price-Anderson Act of 
the Convention on Supplementary Compensation for Nuclear Damage and has 
concluded ratification of the convention would not necessitate any 
substantive changes in the Price-Anderson Act. Nonetheless were this 
convention to be submitted and ratified by the Senate, it is 
conceivable that some technical and conforming changes to the Price-
Anderson Act might be desirable, such as provisions to make clear the 
geographic jurisdictional bounds of each legal regime.
    This concludes my prepared statement. I will be pleased to respond 
to any questions the Committee may have.

    Mr. Barton. Chairman Meserve, EPA recently put out a 
separate groundwater standard on Yucca Mountain. What is the 
NRC's position on that separate groundwater standard?
    Mr. Meserve. You are quite correct that EPA has promulgated 
its final rules for Yucca Mountain, and they do include not 
only a standard for all pathways, but a separate standard for 
groundwater. The NRC is obligated under the statute to adapt 
its regulations to that standard, and we will do so. The 
Commission has long opposed the notion of a separate 
groundwater standard as a matter of policy, however, in that 
we, with the support, I might add, of the National Academy of 
Sciences, have taken the view that groundwater is already 
incorporated as an aspect of the all-pathway standard, and that 
there is no need for a separate standard for groundwater.
    Mr. Barton. Does that continue to be the view of the full 
Commission?
    Mr. Meserve. Yes, that continues----
    Mr. Barton. You said have long--do you continue to have 
that position?
    Mr. Meserve. We continue to have that position, but we 
recognize that EPA has spoken, and absent some congressional 
action----
    Mr. Barton. Only took them 18 years--19 years.
    Mr. Meserve. [continuing] we will obviously comply.
    Mr. Barton. Does DOE, Dr. Magwood, have a position on that 
issue, the separate standard?
    Mr. Magwood. I would say at this stage that there does 
appear to be common ground between where NRC and the EPA would 
like to be. Clearly, NRC stated opinion is that one regulator 
is enough, and in general, we would like to see one regulator. 
But if we can move forward with an EPA groundwater standard, we 
ought to try to do that. I understand from the directors of the 
High Level Waste Program that they believe that they may be 
able to work with these groundwater standards, but nevertheless 
it does present the issue of dual regulation. I recognize that 
there is some concern about that.
    Mr. Barton. Dr. Magwood, can the Department present to this 
subcommittee the latest cost estimates on the construction of 
the Yucca Mountain facility if the decision is made to go 
forward with that facility? Do you have the latest cost 
estimates or can you get them and submit them to the 
subcommittee?
    Mr. Magwood. My office is not responsible for the HLW 
program but I would be happy to inquire about it.
    Mr. Barton. Would you do that?
    [The following was received for the record:]

    In response to your question, I would like to provide the latest 
cost estimates to construct and open a potential repository at Yucca 
Mountain, which were supplied by the Department's Office of Civilian 
Radioactive Waste Management. All costs are from the May 2001 report 
``Analysis of the Total System Life Cycle Cost of the Civilian 
Radioactive Waste Management Program.''
    Beginning in fiscal year 2002, the estimated cost is approximately 
$8.6 billion (in constant year 2000 dollars) through 2010, the planned 
start of repository operations. The estimate is based on assumptions 
that the Yucca Mountain site is recommended and approved for 
development and is licensed by the Nuclear Regulatory Commission. As 
the Subcommittee is aware, these events have not occurred. This 
estimate includes repository development, licensing, and construction 
($6.3 billion over the same timeframe), including financial assistance 
to State and local governments and payments-equal-to taxes; waste 
acceptance and transportation ($1.0 billion), including costs to 
acquire a national and Nevada transportation infrastructure; and 
program management and integration, including funding for the Nuclear 
Regulatory Commission and the Nuclear Waste Technical Review Board 
($1.3 billion).

    Mr. Barton. Are you authorized to give the Department's 
position, if any, on the issue of taking the Nuclear Waste Fund 
off budget?
    Mr. Magwood. No, Mr. Chairman. I am not authorized to 
comment on that.
    Mr. Barton. Okay. Who would be authorized, the Secretary? I 
mean how high do I have to go to get that position?
    Mr. Magwood. I would think that would be a good place to 
start.
    Mr. Barton. Okay. Chairman Meserve, does the NRC have a 
position on taking the Nuclear Waste Fund off budget?
    Mr. Meserve. Mr. Chairman, we have never had occasion to 
examine that.
    Mr. Barton. If I were to ask you, on the record, to examine 
it, would you do so and poll your other Commissioners and send 
us a written response?
    Mr. Meserve. We would be happy to do that, sir.
    Mr. Barton. Okay.
    [The following was received for the record:]

    The Commission currently receives an annual Congressional 
appropriation to cover high-level radioactive waste management 
activities from the Nuclear Waste Fund. The current process 
ensures that the Commission receives appropriate resources to 
execute its statutorily mandated responsibilities without 
burdening licensees. Also, the current process ensures that the 
Commission receives those funds independent of the U.S. 
Department of Energy (DOE), which would be the potential 
license applicant if an application were filed for an NRC 
license to dispose of high-level waste and spent fuel in a 
geologic repository. It is the Commission's understanding that 
these two fundamental attributes (i.e., sufficient funding to 
fulfill its role and funding obtained independent of DOE) would 
remain even if the Nuclear Waste Fund were taken off-budget. On 
that basis has a neutral position.

    Mr. Barton. And, finally, Dr. Meserve, we are told that 
there are some potential new designs for nuclear power that are 
being prepared to be presented to the Commission for reviews. 
Is that your understanding?
    Mr. Meserve. Well, we have already reviewed three new 
designs and have certified them. We are in discussions with 
several other vendors about the prospect that we might certify 
some additional designs. And included in that might be some 
very novel designs. For example, the Pebble Bed Modular Reactor 
would be an example of a unique design.
    Mr. Barton. Do you have confidence that you have got the 
staff expertise and quantity of staff to review these 
applications--new design applications in a timely fashion?
    Mr. Meserve. Well, this has been a recently emerging 
activity, and we are assembling the necessary resources and 
doing that evaluation now. I did submit a letter indicating 
that for fiscal year 2002 we would anticipate the need of some 
additional funding, which in part is in the House markup of our 
appropriations bill.
    Mr. Barton. Okay.
    Mr. Meserve. We are including these matters in our 
evaluation for the fiscal year 2003 budget, which is being 
developed now, to make sure that we have the resources in place 
in order to be able to handle the possibility that we may see 
some very different kinds of designs to evaluate.
    Mr. Barton. Good. I am going to yield the balance of my 
time and recognize the distinguished ranking member, Mr. 
Boucher. We have got numerous witnesses today, so I am going to 
be a little stricter than normal on the questioning time. Mr. 
Boucher is recognized for 5 minutes.
    Mr. Boucher. Well, thank you, Mr. Chairman, and I am going 
to be very brief. And I simply want to pick up on the last 
question that the chairman asked with regard to the Pebble Bed 
Modular Reactor. And my question relates to the application of 
Price-Anderson principles to that potential new reactor design.
    Price-Anderson currently imposes a premium of, I believe, 
it is $200 million per reactor unit, and that is the tier I 
premium. And then in the event that there is a nuclear 
accident, there is a retroactive premium that is, I think, on 
the order of $90 million per unit. And that applies without 
regard to the size of the unit. And the traditional size is 
about 1,000 megawatts. But these new modular units will be on 
the order of 100 megawatts. And if several of them are linked 
together in a modular configuration, three units, for example, 
totaling 300 megawatts, each of them would have to pay the 
premium that the current law specifies of $200 million and then 
have the same retroactive liability. So you would wind up with 
potentially $600 million of premium for 300 megawatts of 
nuclear reactor. Whereas if you built a large 1,000 megawatt 
unit, you would only have $200 million of premium.
    And my question to you is under your current authorities, 
do you have the ability to make the adjustments that would be 
necessary to scale down the size of that premium in such a way 
as to accommodate these new units in the event that you certify 
them and find that they are appropriate for construction?
    Mr. Meserve. Mr. Boucher, let me say that I think that the 
numbers you have are slightly different than my understanding 
of the premium amounts.
    Mr. Boucher. Okay. Well, that is entirely possible, but----
    Mr. Meserve. But, nonetheless, the basic point that you----
    Mr. Boucher. Yes. It is more the principle than the amounts 
I am addressing here.
    Mr. Meserve. Yes, I understand. This is an issue with which 
the Commission is grappling as we speak. We are trying to 
evaluate the situation as to what flexibility there is within 
the statute or whether perhaps some legislative consideration 
ought to be given to an amendment of the Price-Anderson Act to 
deal with this. And we would be happy to submit materials to 
you on this issue for the record.
    [The following was received for the record:]

    As indicated in our response to Question 1, the Commission believes 
that Congress should amend the Act if Congress concludes that multiple 
modular reactor units at a single site should be treated as a single 
facility for Price-Anderson purposes. The Commission is also of the 
view that any statutory changes proposed to address this matter should 
be made within the Price-Anderson provision itself (section 170 of the 
Atomic Energy Act) so as to limit the potential for unintended impacts 
of changes on the overall regulatory framework. Redefining the term 
``facility'' exclusively within section 170 in a way different from the 
way it is used throughout the Atomic Energy Act and legislative 
histories will have the advantage of not disturbing existing law and 
implementing rules with respect to non-Price-Anderson issues.
    Consistent with this view and in response to the request that we 
provide legislative language, we have drafted an amendment to section 
170 of the Atomic Energy Act that would treat multiple modular units at 
a single site as a single facility for purposes of the Price-Anderson 
retrospective assessment. In evaluating whether to pursue such a 
provision, the Congress might consider the need to trigger the maximum 
insurance and retrospective assessment provisions against the impact 
and equity of such requirements on multiple modular units and on 
existing plants.
    If Congress determines that multiple modular units at a single site 
should be treated as a single facility for purposes of the 
retrospective assessment, Congress might consider an insert to Section 
170b(1), following immediately after the first proviso and before: 
``Such primary financial protection . . .'':
        And provided further, That for multiple modular reactors 
        located at a single site, a combination of such reactors 
        (irrespective of whether they are licensed jointly or singly) 
        having a total rated capacity between 100,000 and 950,000 
        electrical kilowatts shall, exclusively and only for the 
        purposes of this section, be denominated a single facility 
        having a rated capacity of 100,000 electrical kilowatts or 
        more.
    This provision would define a range of power levels--the current 
threshold of 100 Mwe to an upper limit of 950 Mwe--for which a 
combination of multiple modular reactors would be treated as a single 
facility for the retrospective assessment. We use 100 Mwe as the lower 
limit because it is the longstanding threshold power level that 
Congress established as the level at which Price-Anderson coverage must 
be provided.
    We suggest 950 Mwe as a possible upper limit because it roughly 
approximates the median power level of the large currently licensed 
power reactors (55 licensed reactors have rated power levels between 
800 and 1105 Mwe). If chosen, 950 Mwe would avoid conflict with the 
existing retrospective premium assessments in the secondary insurance 
pool. However, there are many different fairness and equity arguments 
on this issue and the Commission does not have a view or preference as 
to the specific limits--that is a policy decision for Congress.
    If Congress were to choose to amend Section 170 to treat multiple 
modular units at a single site as a single facility for purposes of 
retrospective assessment, there is no doubt that there are other 
formulations that would achieve the same result.

    Mr. Boucher. Well, that is very good, Mr. Meserve. And if 
you believe that, we do need to act legislatively in order to 
address this concern. I would hope that you would inform us of 
that fact and perhaps suggest an appropriate course for doing 
that. Thank you very much.
    Thank you, Mr. Chairman. That is all I have.
    Mr. Barton. The gentleman from Oklahoma, Mr. Largent, is 
recognized for 5 minutes.
    Mr. Largent. Mr. Meserve, I have a question for you, just 
one question. It is my understanding that Exelon, General 
Atomics and Westinghouse and others are planning to bring 
advanced reactor technologies to the NRC for review and 
approval. It is my understanding that the NRC is currently 
losing a lot of its technical staff to retirement and actually 
have fewer nuclear reactor engineers are available to take 
their place. And the concern among industry folks is whether 
you actually have the technical expertise to even review their 
proposal. Is that true?
    Mr. Meserve. We have a serious human capital challenge in 
that in some important offices of the NRC up to 25 percent of 
the people are eligible to retire today. We have a situation 
where we have five times as many people over age 60 as we have 
under age 30. This is a consequence of many years of declining 
budgets at the NRC; the way the NRC has handled that situation 
is by allowing attrition to occur. And so the demography of the 
agency has become increasingly aged as time has gone on.
    We take that issue very seriously. We have underway an 
evaluation of the skills we have at the NRC and how long we 
expect to be able to have them, what skills we need to have to 
do the work that is in front of us, and are developing 
strategies to fill the gaps. We are very aggressively 
undertaking recruitment activities, examining various retention 
activities and other ways in which we can encourage people to 
consider government employment with the NRC.
    I think there will be a challenge not only for the NRC but 
for the industry and for the Department of Energy in that we 
have the pipeline of our educational system which is not 
producing the people at the moment that all of us collectively 
need. And so that there is a national challenge, it is not just 
an NRC challenge, in this area.
    Mr. Largent. Mr. Meserve, are you aware of any effort by 
TVA to complete the nuclear reactor that they have that is not 
complete currently?
    Mr. Meserve. I believe that there has been some talk of 
possible evaluations that TVA might undertake of some reactors 
that were partially constructed but not completed. I am not 
aware of the current status of its evaluation of that matter.
    Mr. Largent. Okay.
    Mr. Meserve. But it is something I understand that TVA has, 
at least at some level, been considering.
    Mr. Largent. Great. Mr. Chairman, that is all the questions 
I have. I yield back.
    Mr. Barton. Is Mr. Dingell in the outer room? He was here 
just a minute ago. Could you all check? He is next if he is in 
the annex. If not, it is Mr. Doyle. He is not? The Chair would 
recognize the gentleman from Pennsylvania, Mr. Doyle, for 5 
minutes.
    Mr. Doyle. Thank you, Mr. Chairman, and I would like to 
welcome our panelists.
    Director Magwood, I remember back in 1998, during a hearing 
on the DOE budget, we spoke about the Department's then 
proposed nuclear engineering research initiative, which was a 
program recommended by the PCAS as a way to address some of the 
problems facing nuclear energy. And I realize there is 
currently about 55 NERI projects underway, with an additional 
12 to 15 projects expected to be selected for award. Can you 
give us an overview of some of the projects that you feel are 
best addressing the potential long-term barriers of nuclear 
power use? And if possible, can you also give us a sense of 
direction of how the new projects will complement or differ 
from the ones that are already underway?
    Mr. Magwood. Yes. I would like to do that. There are lots 
of good examples of projects that have been conducted in the 
NERI Program that have contributed to the long-term viability 
of nuclear power. One that you may find interesting is one that 
was submitted by industry for a small light water reactor. This 
reactor has, after our NERI award was granted, become the 
subject of considerable interest internationally and has drawn 
considerable internationally investment. Other countries, I 
think, Italy, Japan, and others came into this project 
providing far, far more money than we were providing as a NERI 
project. There has actually now been some talk--I am sure that 
Chairman Meserve has heard it--that this reactor should be 
taken to the NRC sometime in the next few years for possible 
certification. So here is an example where very advanced 
technology has been brought to fruition through a NERI project.
    In addition, NERI has been very effective in looking at 
very basic technology issues, such as materials. One of the 
things that laypeople don't think about when it comes to the 
nuclear industry, is the fact that the entire nuclear business 
revolves around how materials react in certain conditions, and 
we have done lots of research through NERI program on 
materials.
    With respect to the future, I think we are going to spend a 
lot of time thinking about what has become known as Generation 
IV nuclear power systems. This is a very exciting area of study 
that we are pursuing with other countries. There is a new 
Generation IV International Forum has been formed around the 
United States and includes eight other countries. And we are 
planning to work together to develop what we believe will be 
the next generation of nuclear power plants that will be 
deployed perhaps 20 years from now.
    So the direction is actually very bright. We are working 
very closely with our international partners, very closely with 
academia and industry and our national laboratories. I think 
for the first time in many years, we have been able to bring 
that nuclear research community together in a very constructive 
way.
    Mr. Doyle. What do you think, in the Department's view--you 
hear many concerns about nuclear economic safety, proliferation 
resistance, waste minimization. What do you feel is currently 
the most pressing problem, in the Department's view? And what 
in addition to NERI and Generation IV are you doing to address 
what you feel is the most pressing concern? And, finally, are 
you receiving adequate funding support to meet your goals in 
this area?
    Mr. Magwood. Well, I think that the biggest challenge 
facing the future of nuclear power is something we really can't 
do much about it, that's perception. There clearly is a backlog 
of negative perceptions through many parts of society, I think, 
not just in the general society but within the utilities. I 
think there still are people in the utility industries who 
remember financial problems for utilities as a result of 
nuclear project. I think a lot of people have gotten past some 
of those issues. I think the people on Wall Street have gotten 
past those issues. So a lot of progress has been made. But I 
think the general public still needs yet more information about 
the benefits of nuclear power. So, that is one issue that no 
amount of funding can take care of it. It just simply will take 
time, and I think the good operating record of existing 
reactors is also contributing to that.
    From a technology standpoint, I think that the long-term 
issue of fuel supply and the relationship with spent fuel and 
high-level waste is something we are giving a lot of thought 
to. The national energy policy speaks to the possibility of 
relooking at reprocessing, using transmutation to deal with 
waste in the long-term. That doesn't solve the problem today, 
but when you are thinking about our energy supplies going out 
30 or 40 years, you really have to think carefully about these 
issues. It is possible that advanced technology could make the 
geological repository we hope to build last a lot longer, maybe 
keep us at one repository center, not having to worry about a 
second repository, which is the current plan. So, I think those 
are the sorts of long-term issues that we need to deal with.
    Regarding funding, there is never enough funding for these 
activities. The nuclear program has really gone through a very 
rough time. In the early 1990's, we had a research budget of 
over $200 million a year. In the late 1990's our research 
budget was cut to zero. In the current budget proposal for 
2002, it is less than $50 million. So it is a real challenge to 
really keep these issues rolling, but we are doing what we can 
with them.
    Mr. Doyle. Thank you. Thank you, Mr. Chairman.
    Mr. Barton. Thank the gentleman from Pennsylvania. The 
gentleman from Illinois, Mr. Shimkus, is recognized for 5 
minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. My questions will be 
directed to Mr. Magwood, although I know he may not be the 
expert on some of this stuff. If possible, if there is no 
answer, if you could have DOE submit the answer to us and to 
the staff through me, I would appreciate it.
    It is my understanding, under Price-Anderson, DOE has the 
authority that requires contractors to obtain insurance to 
cover public liability in the event of a nuclear incident at 
DOE sites. DOE, however, has not required its contractors to 
obtain any insurance. Instead DOE provides 100 percent 
indemnity to its contractors. And now the question: Has DOE 
required any of its contractors to obtain liability insurance?
    Mr. Magwood. Your statement exhausted my experience on the 
issue, would be happy to find out.
    [The following was received for the record:]

    While the Price-Anderson Act (Act) gives DOE the statutory 
authority to require its contractors to obtain financial protection, 
DOE has a long-standing policy of not permitting or requiring its 
contractors to obtain liability insurance. DOE provides in its 
regulations that its contractors will not normally be required or 
permitted to furnish financial protection by purchase of insurance to 
cover public liability for nuclear incidents. 48 C.F.R. 
Sec. Sec. 950.7010, 970.2870(e). To require private insurance would 
increase DOE's operating expenses. The costs of financial protection 
for an NRC licensee operation are typically recouped through their rate 
base. Conversely, the cost of such financial protection for DOE 
contractors would be a reimbursable cost under the Department's cost-
reimbursement type contracts for which DOE would be required to pay.
    Under its contracting procedures, DOE generally follows federal 
government policy not to approve the purchase of general liability 
insurance by cost-type contractors In assessing this policy, the 
Comptroller General has reasoned that the magnitude of government 
resources obviously makes it more advantageous for the government to 
assume its own risks than to shift them to private insurers at rates 
sufficient to cover all losses, to pay insurers' operating expenses, in 
eluding agency or brokers' commissions, and to provide such insurers a 
profit. See, e.g., 19 Comp. Gen. 211 (1939); 55 Comp. Gen. 1343 (1976).

    Mr. Shimkus. I don't think there is. I think the answer, we 
will find out, is no, but hopefully you will correct me if that 
is not correct.
    Mr. Magwood. Be happy to go look at that.
    Mr. Shimkus. Then the follow-up answer, if it is no, or if 
it is 99.9, then the answer is why not, will be the follow-up. 
And then has DOE looked into the availability of insurance for 
its contractors, to follow-up. And why would DOE not want to 
have at least some insurance for its programs?
    Mr. Magwood. I will be happy to have all those answers for 
you, for the record.
    [The following was received for the record:]

    Private insurance is expensive and most likely is not available for 
many DOE activities. The American Nuclear Insurers (ANI), a private 
insurance company, is currently the sole source of nuclear hazards 
insurance. In response to a query in connection with DOE's Price-
Anderson Act Report to Congress, ANI set forth the terms under which it 
would consider providing private insurance for DOE nuclear 
facilities.\1\
---------------------------------------------------------------------------
    \1\ Department of Energy Report to Congress on the Price-Anderson 
Act, Appendix C, Letter from John L. Quattrocchi, Senior Vice 
President, Underwriting, American Nuclear Insurers, to Omer F. Brown, 
II, Harmon & Wilmot, L.L.P, January 21, 1998 (Attachment B to Comments 
filed by Energy Contractor Price-Anderson Group to Notice of Inquiry) 
(attached).
---------------------------------------------------------------------------
    ANI stated that it is ``not in a position to guarantee that 
coverage would actually be written'' for a DOE nuclear facility and 
that any ``agreement to provide insurance would depend on a careful 
engineering evaluation of the facility, the activities performed, and 
the DOE's agreement to implement recommendations that may be offered.'' 
ANI added that it would be much easier ``to write nuclear liability 
insurance for new DOE facilities than for existing facilities'' because 
ANI would have obvious concerns about picking up liability for old 
exposures which may well preclude insurability for facilities which 
have, in some cases, operated for decades. Moreover. ANI indicated any 
insurance policy would exclude on-site cleanup costs; environmental 
cleanup; property damage at the insured facility; and bodily injury or 
property damage due to manufacturing, handling or use of any nuclear 
weapon or other instrument of war. Radiation tort claims by workers 
also would be excluded but might be covered under a separate industry-
wide policy issued by ANI subject to a shared industry-wide limit of 
$200 million.
    ANI stated that it would consider writing nuclear liability 
insurance at DOE facilities at limits up to $200 million--the maximum 
liability limit that it is currently able to write at any one facility. 
For this insurance, ANI would charge DOE contractors a premium from 
$500,000 to $2 million annually. ANI indicated it would base premiums 
``upon such factors as: type of facility insured, nature of the 
activities performed, type and quantities of nuclear material handled, 
location of the facility, qualifications of site management, quality of 
safety-related programs and operating history.''
    Under its government-wide cost-type contracting principles, if DOE 
required its major site and facility management contractors to procure 
such insurance, DOE would be required to treat the resulting premiums 
as allowable costs and would thereby have to reimburse hundreds of 
contractors and subcontractors for these insurance premium costs. 
Subcontractor insurance premiums would also be passed through to the 
government. Reimbursement of these premiums would secure insurance 
coverage equal to only approximately 2% of the DOE indemnity of $9.43 
billion. Thus, even if private insurance were available, the amount of 
insurance coverage would be limited and the cost would be extremely 
high. Consequently, there is no economic advantage to DOE, its 
contractors, or to the public in requiring private insurance.
                              Attachment B
                          American Nuclear Insurers
                                    Underwriting Department
                                                   January 21, 1998
Mr. Omer F. Brown, II
Harmon & Wilmot, L.L.P.
1010 Vermont Avenue, N.W.
Suite 810
Washington, D.C. 20005

Re: DOE Notice of Inquiry

    Dear Mr. Brown: On December 31, 1997, the DOE published in the 
Federal Register a Notice of Inquiry concerning the preparation of its 
Report to Congress on the renewal of Price-Anderson. One of the DOE's 
questions (Question 11) dealt with the availability of private 
insurance for DOE contractors. To the best of my knowledge, ANI is 
currently the sole source of nuclear liability insurance in the U.S. In 
that context, I thought the Energy Contractors' Price-Anderson Group 
might be interested in some of our thoughts on the issue of insurance.
    The DOE has always had the option of requiring its contractors to 
maintain financial protection below the level at which indemnity is 
provided. It has opted not to require any underlying financial 
protection because the cost of such protection would be passed through 
to the government under the contract. Instead, the government has 
elected to self-insure the risk. Thus indemnity under 170(d) has 
applied to contractors and other ``persons in indemnified'' on a 
``first dollar'' basis. In view of the position taken by the government 
over more than forty years, it is unclear why DOE would consider 
requiring underlying insurance at this late stage.
    In any event, if requested, ANI would consider writing nuclear 
liability insurance at DOE facilities at limits up to $200 million--the 
maximum liability limit we are currently able to write at any one 
facility. However, we are not in a position to guarantee that coverage 
would actually be written. Any agreement to provide insurance would 
depend on a careful engineering evaluation of the facility, the 
activities performed, and the DOE's agreement to implement 
recommendations that may be offered.
    If insurance is written, premiums would be based on such factors 
as: type of facility insured, nature of the activities performed, type 
and quantities of nuclear material handled, location of the facility, 
qualifications of site management, quality of safety-related programs 
and operating history. Although we cannot provide any definitive 
numbers, annual per policy premiums might fall in the range of 
$500,000-$2 million at policy limits of $200 million. These premiums 
would, of course, be subject to change over time.
    I might add that it would be much easier for us to write nuclear 
liability insurance for new DOE facilities than for existing 
facilities. For facilities which have, in some cases, operated for 
decades, we would have obvious concerns about picking up liability for 
old exposures which may well preclude insurability.
    I would also note that the nuclear liability policy written by ANI 
provides coverage only for the insured's liability for tort damages 
because of offsite bodily injury or property damage caused by the 
nuclear energy hazards Among other things, the policy specifically 
excludes coverage for:

 radiation tort claims of workers which can be covered under a 
        separate industry-wide policy issued by ANI subject to a shared 
        industry-wide limit of $200 million;
 bodily injury or property damage due to the manufacturing, 
        handling or use of any nuclear weapon or other instrument of 
        war;
 property damage to any property at the insured facility;
 on-site cleanup costs;
 environmental cleanup costs--i.e., those costs arising out of 
        a governmental decree or order to clean up, neutralize or 
        contain contamination of the environment.
    The exclusions I've noted are highlighted and paraphrased for 
general information purposes only. All policy terms, conditions and 
exclusions should be carefully read in order to determine the scope of 
coverage afforded by the policy.
    I hope this information is helpful to the review process. In the 
final analysis, even if insurance for DOE sites can be written, it 
could not replace the roughly $9 billion of indemnity granted under 
170(d) since we are only able to write liability limits up to $200 
million at this time.
            Sincerely,
                                       John L. Quattrocchi,
                                Senior Vice President, Underwriting

    Mr. Shimkus. Okay. Mr. Chairman, the final point is that if 
Price-Anderson is not renewed, DOE Price-Anderson will not be 
available for DOE contracts after August 2002, which is our 
understanding. And if that is the case, please confirm that for 
us. And I will yield back my time, Mr. Chairman.
    Mr. Barton. The gentleman from Ohio, Mr. Sawyer, is 
recognized for 5 minutes.
    Mr. Sawyer. Thank you very much, Mr. Chairman. Chairman 
Meserve, I have got a series of questions about the 
transportation of nuclear waste. You both may want to answer, 
but my understanding is that section 108 of the act instructs 
the Secretary of Energy only to abide by the regulations of the 
Commission regarding advanced notification of State and local 
governments prior to transportation of spent nuclear fuel or 
high-level radioactive waste.
    I would like to inquire about the procedures and the 
criteria for choosing those routes before you inform State and 
local governments. I am assuming that those criteria include 
some combination of route safety, speed of delivery, exposure 
time on transportation systems and population. And my first 
question is how do you establish what criterion should serve as 
the highest priority in that kind of decisionmaking and when 
would avoiding transportation through population centers not be 
the highest priority?
    Mr. Meserve. Let me back up just one moment and say that 
one of the things that the NRC, first of all, does is that we 
have very high standards for the casks with which spent fuel is 
transported to assure that even in the event of an accident 
that the cask would not fail in a way that results in the 
release of radioactive materials.
    In the case of spent fuel that is under our jurisdiction--
and there is divided responsibility here.
    Mr. Sawyer. I understand.
    Mr. Meserve. The Department of Energy has responsibility 
for some materials which it regulates itself, and we regulate 
commercial spent fuel. The licensee would come to us if it were 
going to transport spent fuel with a proposed route. We 
evaluate that route for the purpose of assessing the safeguards 
issues associated with that transport, namely the possibility 
the material might be hijacked and used for proliferation 
purposes. And that would involve the NRC staff, quite 
frequently, traveling the route, evaluating whether there are 
safe havens on the route and so forth in order to assess it.
    The Department of Transportation, as I understand it, has 
responsibility for the safety-related issues associated with 
the transport of spent fuel and does an evaluation with the 
safety side of the issues.
    Mr. Sawyer. I don't want to run out of time. I don't want 
to curtail your answer, but I don't want to run out of time. 
Let me rephrase the question then. Does the concentration of 
population along a route play a substantial role in the 
establishment of what a route might be?
    Mr. Meserve. I am sure it is something--perhaps it would be 
better if I responded for the record, but my understanding is 
that the examination of population centers is important. There 
are other factors to consider--fastest route, safe havens that 
would be available. That sort of thing would have to be weighed 
in the balance.
    [The following was received for the record:]

    Population concentrations are factored into the decision 
regarding a transportation route. However, other considerations 
are factored into routing decisions as well. The routes for 
transporting high-level radioactive waste (HLW) are selected by 
the carrier (i.e., trucking or railroad company) in 
consultation with the shipper, consistent with the U.S. 
Department of Transportation (DOT) and/or carrier-specific 
requirements. Once selected by a carrier, each transportation 
route is submitted for U.S. Nuclear Regulatory Commission (NRC) 
approval of its physical protection and security 
considerations. NRC regulations specify additional measures to 
be taken in heavily populated areas. NRC's physical protection 
and security regulations require constant communications 
capability when transporting HLW through heavily populated 
areas. In addition, highway shipments of HLW through heavily 
populated areas are required to be accompanied by an armed 
escort. Rail shipments of HLW through heavily populated areas 
are required to be accompanied by two armed escorts.
    For transportation by public highway, carriers are required 
to select routes that reduce the time in transit. To facilitate 
selection of a route that reduces time in transit, DOT 
regulations specify the use of ``preferred routes,'' meaning 
the U.S. interstate highway system and related city bypasses. 
States may designate alternate preferred routes to supplement 
the DOT prescribed interstate highway system or to provide 
suitable alternatives to the interstate highway system. States 
use DOT guidance to evaluate and establish alternatives, and 
one of several primary route comparison factors is the 
contribution of population density to risk. Thus, for highway 
transport, the States may consider population density in route 
selection.
    For railway transportation, population density does not 
play a significant role in selection among possible routes. 
There are limited routing choices for rail transportation and 
often mainline railroad tracks travel between and through 
urban-industrial areas; however, rail lines are private 
property and generally are farther removed from the public than 
highways. For transportation by railroad, route selection 
relies on industry practices (there are no DOT regulations for 
selecting from among rail route alternatives). Generally, 
railroad routing practice is to maximize mileage between 
interchanges with forwarding railroads. Future transport of HLW 
cargo by railroad may not follow this practice depending on 
such factors as the special needs of the shipper, effects on 
other rail commerce, use of single-purpose trains, and special 
clearance requirements (if any) for railcars loaded with HLW. 
DOT regulations require rail carriers to forward each shipment 
of hazardous material, including HLW, promptly (i.e., on the 
next available train) and within 48 hours after acceptance.

    Mr. Sawyer. If there is the establishment of a centralized 
repository for waste, would there be regular routes or would 
those routes change over time?
    Mr. Meserve. I don't know the answer to exactly how that 
would be worked out. I would suspect that there might be some 
variability in the routes for safeguards reasons.
    Mr. Sawyer. Sure. And, of course, highways like hospitals 
and universities and airports are always works in progress, and 
they change over time.
    Let me just go to one final question on this subject. I 
assume that accidents during transportation would be covered 
under Price-Anderson. I am concerned about the additional 
costs, however, particularly communities along the route, in 
terms of training and equipment for safety forces, upgrading 
road standards, traffic management requirements, and the 
increase in risk and potential decrease in property values 
along identified regular routes. Would Price-Anderson come into 
this at all or would there be other forms of compensation to 
communities that understood this burden?
    Mr. Meserve. I don't believe that Price-Anderson covers the 
types of losses that you have described. But perhaps I would 
best answer that question for the record.
    [The following was received for the record:]

    No. Price-Anderson is only triggered in the event of a 
nuclear incident. There are no provisions in the Act to pay for 
assistance for costs undertaken by communities for planning 
purposes.

    Mr. Sawyer. Should there be? Should there be coverage for 
that kind of risk undertaken?
    Mr. Meserve. I think that is a judgment that Congress might 
be in a better position to make than the NRC. I can say that 
there has been transport of spent fuel for 30 years and--there 
have been accidents that have occurred of an ordinary traffic 
variety, but we have never had a cask fail in a way that has 
resulted in a release of radioactive materials.
    Mr. Sawyer. Thank you very much, Mr. Chairman. Mr. Magwood, 
do you have any comments that you would like to make?
    Mr. Magwood. Just a very brief comment. Chairman Meserve 
mentioned that DOE, under its own oversight, moves spent fuel 
around the country on a very regular basis. It has a lot of 
expertise, a lot of experience and an excellent safety record 
with moving spent fuel around the country.
    Mr. Sawyer. Thank you very much.
    Mr. Barton. The gentleman from Arizona, Mr. Shadegg, is 
recognized for 5 minutes.
    Mr. Shadegg. Thank you, Mr. Chairman. There are some new 
technologies coming forward, and they are quite, I guess, 
dramatically different than existing technologies in the 
nuclear field. I would like to ask either of you, though, 
Chairman Meserve, it may be more appropriate for you to answer, 
what changes you believe will be needed, or the NRC believes 
will be needed, to its regulations to address these new 
technologies, particular with regard to licensing and 
inspections?
    Mr. Meserve. Let me say that is a matter that we are 
currently evaluating. Of course, the degree to which we would 
need to make modifications of our regulations would depend, to 
some extent, to a large extent, on the nature of the technology 
with which we are presented.
    We have a comprehensive regulatory system that is designed 
for reactors that are cooled by light water. If somebody were 
to come forward with, for example, a gas-cooled reactor, then 
we would have to make modifications of our regulatory system in 
order to accommodate the different kinds of threats that would 
be presented by that design and basically develop a regulatory 
process that would be the counterpart of the one that we have 
for light water reactors today.
    Mr. Shadegg. And you are currently looking at those issues?
    Mr. Meserve. Yes, we are.
    Mr. Shadegg. Okay. Mr. Magwood?
    Mr. Magwood. Yes. I won't comment on the specifics of any 
particular technologies out there now, but I would say that we 
have encouraged NRC for the longer-term, to move toward a more 
advanced methodology of licensing, using risk-informed, 
performance-based standards. They are moving in this direction. 
I think they have made a lot of progress.
    For reactors that would be licensed in this decade, 
however, it simply isn't enough time to go into a more advanced 
licensing form, so we have to work with more or less the tools 
that we have in hand. And I think that, from the discussions I 
have had with NRC officials, that the NRC understands the 
issues and is looking for ways of moving through the very 
complicated technical subjects that have come along.
    Mr. Shadegg. I am a supporter of the central repository at 
Yucca Mountain. However, it seems to me if we don't get that 
issue resolved, the only way nuclear can move forward is that 
we either decide to complete Yucca Mountain and use it or to go 
to some other form of storage, perhaps dry cask storage, as is 
happening in Europe. Do either of you--can either of you give 
me the timeframe for those decisions and any input on your 
thoughts with regard to alternatives to the central repository?
    Mr. Magwood. As I think I mentioned earlier, we expect to 
see a decision from DOE on the site suitability analysis around 
the end of this year. So we are moving in that direction. I 
don't think it is an appropriate for us to speculate about 
alternatives to that, because that is really the focal point of 
our activity right now, and I think it is essential that that 
go forward.
    I think it is essential that the government continue to 
show progress in moving toward a repository. Even with new 
technologies, transportation and recycling, we need a 
repository, and I think we just simply need all the support we 
can get from Congress to have the funding and the support to go 
forward with the program.
    Mr. Shadegg. Mr. Chairman, do you have any comment on that?
    Mr. Meserve. The only thing I would add is that the 
Commission is comfortable that we are able to accommodate the 
spent fuel that is being generated by the reactors or in new 
reactors until such time as a repository is available. The fuel 
is currently stored either in spent fuel pools or in dry cask 
storage. We are comfortable that that is a safe way in which to 
hold the fuel for a period of decades. It is obviously not a 
long-term solution, but there is time in order to get a 
repository in place.
    Mr. Shadegg. As a supporter of Yucca, I appreciate your 
comments. I think there is a new urgency in light of the energy 
crisis facing the country and the refocus that we are seeing on 
nuclear these days. With that, Mr. Chairman, I yield back the 
balance of my time.
    Mr. Barton. Thank the gentleman. Would recognize the 
gentleman from Michigan, Mr. Dingell, for 5 minutes.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy. I 
have no questions at this time.
    Mr. Barton. Would then recognize Mr. Strickland for 5 
minutes.
    Mr. Strickland. Mr. Chairman, thank you. Mr. Meserve, 
Chairman Meserve, could you tell us approximately what 
percentage of our nuclear fuel for our power plants that 
produce some 20 percent of our electricity now comes either 
from Russia or other foreign sources?
    Mr. Meserve. I would have to provide that information for 
you for the record. It is certainly the case that some of the 
fuel that is burned in the United States does come from foreign 
sources. Some portion of it comes from Russia, as the result of 
the arrangements for the diluting of the high-enriched uranium 
from the weapons program.
    Mr. Strickland. Mr. Magwood, could you confirm that we now 
import over 50 percent of the fuel that we use for our nuclear 
power plants?
    Mr. Magwood. If you include the HEU agreement with Russia, 
yes, that is accurate.
    Mr. Strickland. And that is primarily from Russia but some 
portion from other countries.
    Mr. Magwood. We do receive some amount of our supply--the 
United States uses about 10 million SWUs, as we call them.
    Mr. Strickland. Sure.
    Mr. Magwood. And I think about 2.5 million SWU comes from 
Europe.
    Mr. Strickland. Great. So right now, today, in America, we 
are importing more than half of the fuel that produces the 20 
or so percent of the electricity generated in this country. We 
are deeply dependent on foreign sources for nuclear fuel today. 
Is that right?
    Mr. Magwood. With the shutdown of the plant in Portsmouth, 
that is accurate. We are importing a large percentage of our 
needs, yes.
    Mr. Strickland. Well over 50 percent.
    Mr. Magwood. About that.
    Mr. Strickland. I have been led to believe perhaps 53 
percent.
    Mr. Magwood. Well, I think it is important to recognize, 
though, that USEC exports to foreign customers.
    Mr. Strickland. But the important thing that I am trying to 
emphasize here is that we are heavily dependent on Russia and 
other countries for nuclear fuel. These new reactors that may 
come on-stream, my understanding is that they may need enriched 
uranium or enriched fuel, up to 8 percent; is that correct?
    Mr. Magwood. That is correct.
    Mr. Strickland. To what level was the Portsmouth facility 
licensed to enrich?
    Mr. Magwood. I believe Portsmouth was licensed up to 5 
percent.
    Mr. Strickland. Ten percent, I believe.
    Mr. Magwood. Excuse me, 10 percent.
    Mr. Strickland. And we have closed it down. To what level 
is the Paducah facility licensed to enrich?
    Mr. Magwood. I think I will defer to Chairman Meserve on 
that, but I believe it is----
    Mr. Meserve. Five percent.
    Mr. Magwood. [continuing] 5 percent.
    Mr. Strickland. Five percent. So we are proceeding to 
develop new reactors, and we do not have a facility currently 
capable of enriching uranium to produce the fuel those reactors 
may need.
    Mr. Chairman, Chairman Meserve, you said that the role of 
the NRC is safety. Certainly, that is one of the roles. But I 
believe as a result of the 1996 Privatization Act you have a 
second role, and I would like to read from that act: ``No 
license or certificate of compliance may be issued to the USEC 
or its successor, under this section, if the Commission 
determines the issuance of such a license or certificate of 
compliance would be inimical to, and one of the things is, the 
maintenance of a reliable and economic domestic source of 
enrichment services.'' It seems to me that we have given you a 
second responsibility, and that being responsibility for 
ensuring energy security in terms of nuclear fuel? Would you 
agree?
    Mr. Meserve. It is in fact the case that in the legislation 
covering the privatization of the enrichment facilities, there 
was a unique obligation that was given to the Commission to 
examine reliable and economical supply, among other issues, 
associated with the issuance of a certificate to that facility.
    Mr. Strickland. And do you feel that you fulfilled that 
obligation when you approved the closing of the Portsmouth 
facility and the upgrading of the Paducah facility?
    Mr. Meserve. Well, actually, we approved the upgrading of 
the Paducah facility. It was a decision by the certificate 
holder to close the Portsmouth facility.
    Mr. Strickland. But wasn't that a factor in whether or not 
we can maintain a reliable domestic supply, since as a result 
of Mr. Magwood's statement, since Portsmouth has closed we are 
now importing over 50 percent of the fuel we use from foreign 
sources? That is not a reliable domestic supply, in my 
judgment.
    Mr. Meserve. We have had the opportunity to discuss this 
before. As I think I have indicated in the past, the assessment 
from our General Counsel's Office was the language to which you 
have quoted from the statute was chiefly looking at foreign 
ownership issues.
    Mr. Strickland. Chairman Meserve, excuse me for 
interrupting. I would challenge you or your General Counsel to 
find anything in the congressional debate regarding that act 
that would lead one to believe that was the intent of this 
language. Would you please supply me with any reference within 
the congressional discussion, debate or within the act itself 
that would verify or justify such a conclusion?
    Mr. Meserve. We would be happy to do so.
    [The following was received for the record:]

    On April 26, 1996, President Clinton signed into law H.R. 3019 
(Public Law No. 104-134), legislation which provided FY 1996 
appropriations to a number of Federal agencies. Included within this 
legislation is a sub chapter entitled the ``USEC Privatization Act.'' 
Section 31I6 of this Act amended several provisions of the AEA 
including section 193 by adding the following:

  (f) LIMITATION.--No license or certificate of compliance may be 
    issued to the United States Enrichment Corporation or its successor 
    under this section or sections 53, 63, or 1701, if the Commission 
    determines that--
    (1) the Corporation is owned, controlled, or dominated by an alien, 
        a foreign corporation, or a foreign government; or
    (2) the issuance of such a license or certificate of compliance 
        would be inimical to--
      (A) the common defense and security of the United States; or
      (B) the maintenance of a reliable and economical domestic source 
            of enrichment services.
    The evolution of section 193(f) indicates that the intent behind 
the provision was to guard against attempts by foreign corporations or 
governments to acquire control of the GDPs and subsequently take 
actions to undermine the U.S. enrichment capability.
    The substance of Section 193(f) was initially proposed in a draft 
bill submitted by the Administration providing comments on S. 755, a 
bill to provide for USEC privatization. The Administration's comments 
included the following provision as a new section entitled, ``Section 
1704 Foreign Ownership Limitation,'' in Chapter 27 of the AEA:
        No license or certificate of compliance may be issued to the 
        Corporation under Sections 53, 63, 193, or 1701 if, in the 
        opinion of the Nuclear Regulatory Commission, the issuance of 
        such a license or certificate of compliance to the Corporation 
        would be inimical to the common defense and security of the 
        United States due to the nature and extent of the ownership, 
        control or domination of the corporation by a foreign 
        corporation or a foreign government or any other relevant 
        factors or circumstances.1 (Emphasis added)
---------------------------------------------------------------------------
    \1\ S. Rpt. 104-173, at 50 (1995) (June 19,1995, Letter from 
William H. Timbers, Jr. enclosing draft bill).
---------------------------------------------------------------------------
    The Administration's bill included the following codification 
change to the AEA as section 193(f):
  (f) LIMITATION--No license or certificate of compliance may be issued 
    to the United States Enrichment Corporation or its successor under 
    this section or sections 53, 63, or 1701, if in the opinion of the 
    Commission, the issuance of such a license or certificate of 
    compliance--
    (I) would be inimical to the common defense and security of the 
        United States; or
    (ii) would be inimical to the maintenance of a reliable and 
        economical domestic source of enrichment services because of 
        the nature and extent of the ownership, control, or domination 
        of the Corporation by a foreign corporation or a foreign 
        government or any other relevant factors or 
        circumstances.2 (Emphasis added)
---------------------------------------------------------------------------
    \2\ S. Rpt. 104-173, at 54 (1995)
---------------------------------------------------------------------------
    S. 755, as reported by the Senate Committee on Energy and Natural 
Resources, included the Administration's proposed codification of an 
amendment to section 193 of the AEA.3 The Committee's report 
to accompany S. 755 discusses the provision in a section entitled 
``Limitations on Foreign Ownership.'' It noted that:
---------------------------------------------------------------------------
    \3\ S. Rpt. 104-173, at 11 (1995).
---------------------------------------------------------------------------
          S. 755, as introduced, contains a provision providing the 
        Nuclear Regulatory Commission with the authority to deny a 
        license or certificate of compliance if the ``issuance of such 
        a license or certificate of compliance to the corporation would 
        be inimical to the common defense and security of the United 
        States due to the nature and extent of the ownership, control 
        or domination of the Corporation by a foreign corporation or 
        foreign government or any other relevant factors or 
        circumstances'' (emphasis added).
          The Committee substitute, in section 17(a)(2) includes the 
        ``common defense and security'' requirement while adding that 
        the NRC may also deny a license or certificate of compliance if 
        doing so would be ``inimical to the maintenance of a reliable 
        and economical domestic source of enrichment services due to 
        the nature and extent of the ownership, control or domination 
        of the Corporation by a foreign corporation or a foreign 
        government or any other relevant factors or circumstances. This 
        provision was added to guard against the possibility of a 
        foreign uranium enrichment company acquiring the Corporation 
        with the intent of operating it in a manner inconsistent with 
        its maintenance as an ongoing uranium enrichment concern.'' 
        4
---------------------------------------------------------------------------
    \4\ S. Rpt. 104-173, at 19-20 (1995) (emphasis in original).
---------------------------------------------------------------------------
    The report further states that no certificate or license should be 
issued:
        if in the opinion of the NRC the issuance of such a license or 
        certificate of compliance would be inimical to the common 
        defense and security of the United States or would be inimical 
        to the maintenance of a reliable and economical domestic source 
        of enrichment services because of the nature and extent of the 
        ownership, control, or domination of the Corporation by a 
        foreign corporation or a foreign government or any other 
        relevant factors or circumstances. Id. at 31. (Emphasis added).
    The language contained in S.755, to provide for a USEC 
Privatization Act, was merged into S.1357, a bill to provide for a 
Balanced Budget Reconciliation Act of 1995 which passed the Senate on 
October 27, 1995.5 S.1357 included the language reported out 
on S.755. On the next day, the Senate then inserted S.1357 into H.R. 
2491 which was the House bill for the same budget act.6
---------------------------------------------------------------------------
    \5\ 141 Cong. Rec. S16096 (October 27, 1995)
    \6\ 141 Cong. Rec. S16159 (October 28,1995)
---------------------------------------------------------------------------
    The House bill also contained language for a section 193(f). Its 
version provided language addressing common defense and security and 
foreign ownership and control, but not language addressing a reliable 
and economical domestic source of enrichment.7 The intent of 
the House bill was to ensure that enrichment activities would be 
subject to the same foreign ownership limitations as any other nuclear 
production or utilization facility and that the interpretation of 
section 193(f) be consistent with interpretations of similar language 
in sections 103 and 104 of the AEA.8
---------------------------------------------------------------------------
    \7\ H.R. 2491 as enrolled by the House on October 27, 1995 
contained the following language:
    If the privatization of the United States Enrichment Corporation 
results in the corporation being--
    (1) owned, controlled, or dominated by a foreign corporation or a 
Foreign government, or
    (2) otherwise inimical to the common defense or security of the 
United States, any license held by the Corporation under sections 53 
and 63 shall be terminated.
    \8\ House Report 104-86, at 20 (1995) on H.R. 1216, a bill to 
establish the USEC Privatization Act, which was incorporated into H.R. 
2491.
---------------------------------------------------------------------------
    Following the conference on the two bills, the Congress enacted the 
language that is in the current statute. The Conference report stated 
that it was adopting the Senate version with minor changes. While a few 
provisions were discussed, there was no discussion relevant to the 
section 193 provision.9 Thus, there is no indication that 
the language in the conference version of H.R. 2491--separating the 
concept of a reliable and economical domestic source of enrichment from 
the common defense and security--was intended to change the intent 
described in Senate Report 104-173 which was to guard against the 
possibility of a foreign uranium enrichment company acquiring the 
Corporation with the intent of operating it in a manner inconsistent 
with its maintenance as an ongoing uranium enrichment concern.
---------------------------------------------------------------------------
    \9\ H. Rpt. 104-350, at 1015 (1995).
---------------------------------------------------------------------------
    On December 6, 1995, the President vetoed the Balanced Budget 
Reconciliation Act of 1995 for reasons unrelated to its enrichment 
provisions.
    Thereafter, on January 26, 1996, Mr. Murkowski submitted a 
substitute amendment to S.755. In introducing this legislation, he 
stated that this bill ``is virtually identical to USEC privatization 
language contained in the Budget Reconciliation measure passed earlier 
by the Senate.'' As to section 193(f), it contained the same language 
that the President had earlier vetoed as part of the Balanced Budget 
Reconciliation Act of 1995. Thereafter, the substitute language of 
S.755 was incorporated into the legislation that was enacted into the 
USEC Privatization Act as Public Law 104-134(April 26, 1996). There was 
no further discussion that addressed section 193(f).In sum, as there 
were no floor discussions in either the House or Senate pertaining to 
section 193(f), the only relevant legislative history is contained in 
Senate Report 104-173. Again, that Report states that:
          This provision was added to guard against the possibility of 
        a foreign uranium enrichment company acquiring the Corporation 
        with the intent of operating it in a manner inconsistent with 
        its maintenance as an ongoing uranium enrichment concern.

    Mr. Meserve. I think that this is a statutory provision 
that has rather sparse legislative history associated with it. 
It does make reference to this obligation arising in the 
context of issuance of certificates, which we would understand 
might include transfers as well, but that, arguably, does not 
include license amendments.
    I might also add that there is a practical problem for the 
NRC in this area in that we have limited tools available to us. 
We have an obligation to assure the safe operation of these 
facilities and others. The ultimate sanction that we can impose 
is to require a facility to be brought into safe shutdown 
condition. It is rather awkward for us, given that obligation 
to assure safety, to be simultaneously being asked to issue 
orders to require facilities to remain open. There is a 
conflict there.
    Mr. Strickland. Chairman Meserve----
    Mr. Barton. This will have to be the last comment in this--
--
    Mr. Strickland. Sure. And this is my last comment: I hope 
the fact that it would have created an awkward situation did 
not prevent you from doing the right thing. And awkward 
situation could have occurred, I agree. And then this Congress 
would have had the responsibility for determining how to deal 
and resolve that awkward situation. But I don't think it was 
the responsibility of the NRC to make that judgment. I think 
that should have been the responsibility of the Congress. Thank 
you, Mr. Chairman.
    Mr. Barton. Thank the gentleman from Ohio. The Chair would 
recognize the gentleman from Massachusetts for 5 minutes.
    Mr. Markey. Let me just find my questions here. Sorry. I 
can hear the sigh of relief coming from the panel.
    Mr. Chairman, Mr. Magwood, if there was a catastrophic 
nuclear accident in this country, let us say a full core 
meltdown, breach of containment and massive release of 
radiation, what are your best estimates of how much such an 
accident might cost in a major metropolitan area, top 10 size 
metropolitan area in the United States?
    Mr. Meserve. Of course it would depend on the circumstances 
of what facility and what area. I think I----
    Mr. Markey. Indian Point, for example.
    Mr. Meserve. I think I would best provide that sort of 
information for the record. I don't have that at my fingertips.
    Mr. Markey. So you don't know that?
    Mr. Meserve. I don't know that answer.
    Mr. Markey. Okay. Well, I will just tell you that several 
years ago there was an estimate that if Indian Point had that 
full core meltdown, it would cost approximately $300 million in 
New York City area. Under Price-Anderson, how much of the 
damage would the operator of a nuclear power plant be liable 
for?
    Mr. Meserve. Well, the way the system operates is that 
there is $200 million of primary insurance coverage, and then 
there is a retrospective premium where, per reactor, per 
accident, all of the utilities would be required to kick in 
money per plant to the total amount, I think, per accident of 
$83 million, in increments of $10 million per year. You sum all 
that up over the 104 power plants, that means that the private 
sector is providing over $9 billion of coverage.
    Mr. Markey. So each nuclear power plant would be 
responsible for approximately how much, each nuclear power 
plant operator?
    Mr. Meserve. Well, my understanding would be that it would 
be the amount of the retrospective premium, which is $83 
million for each accident, plus whatever the premium is for the 
first $200 million in coverage.
    Mr. Markey. Okay. So, essentially, the nuclear power plant 
operator would not have--that individual would not have a huge 
financial insurance exposure; is that correct? It would be 
spread dramatically?
    Mr. Meserve. Well, my understanding of the statutory 
provision is that if there were a circumstance where more than 
then $9 billion would be required, the Congress has left open 
the prospect that it might reach into the pockets of the 
licensees for additional contributions.
    Mr. Markey. But the problem is is that the licensees have 
come to us, because they don't have the resources. And as a 
result, the taxpayers would--it would be like a hurricane going 
through Florida. Everyone would have insurance, and then they 
would come to Congress and say, ``Could you please appropriate 
these emergency funds.'' And I think that is essentially the 
case, because, obviously, no individual company would have 
that.
    Mr. Barton. Would the gentleman yield for a very brief----
    Mr. Markey. I would be glad to, sure.
    Mr. Barton. Do you know what Three Mile Island cost in 
terms of insurance?
    Mr. Meserve. I am told that it is $80 million in claims and 
claims expenses.
    Mr. Barton. Yes. Because that is an actual occurrence. I am 
told $70 million, so $70 million, $80 million.
    Mr. Meserve. That means they never reached through even the 
primary insurance layer in that event.
    Mr. Markey. Thank you very much. I am having a hard time 
with this, because they are giving us their enthusiastic 
endorsement of reauthorization of Price-Anderson, but the 
individual details of how it operates are not available, and we 
are going to be moving to a markup of the bill, basically, on 
the day that we get back. So that is troubling to me.
    Under the act, how much would the companies that designed 
and constructed the plant be liable for?
    Mr. Meserve. I believe the way the system operates is that 
the system is one that provides for the licensees to provide 
the compensation. But there is, in fact, far more than 
insurance that is involved in the Price-Anderson Act. It 
involves a whole procedural system in order----
    Mr. Markey. But there is no liability for those that 
constructed it or designed it; is that correct?
    Mr. Meserve. And there are also certain defenses that are 
waived as well so that there are some trades that are made.
    Mr. Markey. They are not liable then. So if you build 
something and it is defective, they are not liable, which there 
is no other product in American society that is in that 
category. Who would pick up the rest--Okay. If the new reactor 
designs are so safe, why do they need limits now on liability 
on the Price-Anderson? I am hearing testimony that it is really 
totally safe. Mr. Magwood believes it, and you do. Why do we 
need to have the Federal Government subsidize the insurance?
    Mr. Meserve. I don't think that anyone can tell you that it 
is totally safe. The purpose of the regulatory system assures 
that there is adequate----
    Mr. Markey. Is it more dangerous than the other electrical 
generating sources of electricity in the United States?
    Mr. Meserve. That is a complicated question. If one looks 
at coal, for example, as an alternative, there are risks that 
are imposed from coal mining.
    Mr. Markey. But they don't need Federal insurance. Why does 
the Federal Government have to insure the nuclear industry?
    Mr. Meserve. Well, I mean the history of the nuclear 
industry has been one that has shown that the plants have been 
operated safely in the United States----
    Mr. Markey. Right.
    Mr. Meserve. [continuing] even in the instance of Three 
Mile Island.
    Mr. Markey. But, you see, you can't have it both ways. You 
realize that Mr. Magwood----
    Mr. Meserve. But no one can tell you that there isn't a 
possibility, one that we believe is very small, that there 
could be a catastrophic accident. So we do need to have a 
system in place to deal with the eventuality that all of us 
hope will not happen and which----
    Mr. Markey. Why can't the market deal with that? Why can't 
the industry go to the market and get insurance for that?
    Mr. Meserve. Well, I believe you have some people in 
another panel from the nuclear insurance industry who may be 
prepared to discuss that. It is my understanding is that given 
the nature of this sort of risk, that it is something that you 
need to have the system----
    Mr. Markey. You are saying the risk is so great that the 
nuclear industry cannot get insurance, and therefore you 
enthusiastically recommend to us----
    Mr. Meserve. Well, the risk also would include a 
consideration of the probability of occurrence. Consequences 
might be large, but the probability of the occurrence we 
believe is very small so that we believe the risk is 
acceptable.
    Mr. Markey. Well, that is the basis of hurricane or tornado 
insurance in Massachusetts. The chances are very low of having 
a tornado in Massachusetts; therefore, the insurance rates for 
it are very low. Why wouldn't the same thing work for nuclear 
power if the probability of any occurrence is very low that the 
rates are very low?
    Mr. Meserve. Well, I think that actually the probability is 
different. Having lived in Massachusetts, I have had the 
opportunity to see many hurricanes that have occurred there.
    Mr. Markey. No, but a tornado.
    Mr. Meserve. Well, my point is that there are a range of 
probabilities that an event may occur. We believe the 
probability of a reactor accident is small, but it does exist. 
And we have tried through regulation to make it as small as 
possible.
    Mr. Markey. Let me go to you, Mr. Magwood.
    Mr. Meserve. I think it is very difficult to insure it, 
given the nature of that risk.
    Mr. Markey. Let me go to you, Mr. Magwood, for a final 
question. What about the DOE contractor hauling nuclear waste 
to Yucca Mountain? Let us say that it gets into a terrible 
accident as the result of gross negligence or willful 
misconduct. Under Price-Anderson, he is totally indemnified 
from liability, isn't he?
    Mr. Magwood. That is my understanding, but, again, I am not 
the Price-Anderson expert, so I won't be able to answer 
detailed questions about that. But, yes, that is my 
understanding.
    Mr. Markey. But do you support reauthorization of Price-
Anderson?
    Mr. Magwood. Yes.
    Mr. Markey. Are you here authorized to take that position 
for the agency?
    Mr. Magwood. I am authorized to point you toward our 
written testimony, which we will submit for the record.
    Mr. Markey. That would be very helpful. But does that 
really make any sense that every other industry has to pay for 
its own insurance to lug the coal or the oil or the gas or 
everything else across the country, but yet the Federal 
Government subsidizes the insurance for gross negligence and 
willful misconduct of the nuclear industry, as they are saying 
that the containers are totally safe and no one has to worry. 
Why can't they go, again, into the private sector and get 
insurance?
    Mr. Magwood. I would only reiterate what Chairman Meserve, 
that these are very, very small possible scenarios.
    Mr. Markey. Right.
    Mr. Magwood. But the scenario that you----
    Mr. Barton. This will have to be the gentleman's last 
question.
    Mr. Markey. So why doesn't the insurance industry given 
them insurance if it is a very slight possibility? That is the 
basis of insurance. It is just basically a----
    Mr. Magwood. I think I would probably tend to blame the 
trial lawyers.
    Mr. Markey. You would blame the trial lawyers.
    Mr. Barton. The gentleman's time is expired on that note.
    Mr. Markey. They have no case to bring. They are 
indemnified, so they can't bring the case.
    Mr. Barton. The gentleman's time is expired.
    Mr. Markey. Thank you.
    Mr. Barton. We want to thank this panel. We apologize for 
the tardiness of the start of the hearing. Members will have 
opportunity to have written questions, and we would hope that 
if they are presented, that your agencies will expedite the 
answers, because we are going to begin to be drafting and 
marking up legislation in the very near future. So you are 
excused.
    Mr. Meserve. Thank you very much.
    Mr. Barton. Thank you.
    Mr. Magwood. Thank you.
    Mr. Barton. We would all now like to hear our second panel. 
If you will please begin to come forward. Hopefully we have Mr. 
Marvin Fertel, who is the senior vice president of Business 
Operations for the Nuclear Energy Institute. We should also 
have Mr. Jack Skolds, the chief operating officer of Exelon 
Nuclear Power; Mr. George Davis, with the Westinghouse Company; 
Mr. Laurence Parme, who is with General Atomics; Dr. Allen 
Womack, who is the president of BWX; Mr. John Quattrocchi, the 
senior vice president of Underwriting of the American Nuclear 
Insurers; and Ms. Anna Aurilio, who is the legislative director 
of the U.S. Public Interest Research Group. I think we are all 
here.
    Mr. Fertel, we are going to start with you, ask you to 
summarize in 5 minutes. We will go right down the line, and 
then we will have some questions. So welcome to the 
subcommittee.

     STATEMENTS OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT, 
  BUSINESS OPERATIONS, NUCLEAR ENERGY INSTITUTE; JACK SKOLDS, 
   CHIEF OPERATING OFFICER, EXELON NUCLEAR; GEORGE A. DAVIS, 
  DIRECTOR, GOVERNMENT PROGRAMS NUCLEAR SYSTEMS, WESTINGHOUSE 
 ELECTRIC COMPANY; LAURENCE L. PARME, MANAGER, NUCLEAR SAFETY 
AND LICENSING, GENERAL ATOMICS; E. ALLEN WOMACK, PRESIDENT, BWX 
 TECHNOLOGY, INC.; JOHN L. QUATTROCCHI, SENIOR VICE PRESIDENT, 
  UNDERWRITING, AMERICAN NUCLEAR INSURERS; AND ANNA AURILIO, 
   LEGISLATIVE DIRECTOR, U.S. PUBLIC INTEREST RESEARCH GROUP

    Mr. Fertel. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for the opportunity to testify on 
behalf of the nuclear energy industry on both the 
reauthorization of the Price-Anderson Act and on the future of 
nuclear energy in the U.S. I would appreciate it if my entire 
statement could be included in the record.
    Mr. Barton. Without objection, so ordered.
    Mr. Fertel. Let me start with the prospects for new nuclear 
plants in the United States. Demand for electricity in the 
United States is growing and will continue to grow in order to 
support our economy. Recently, the Department of Energy 
estimated that our Nation will need 393,000 megawatts of 
additional generating capacity between now and the year 2020, 
and that assumes a relatively modest growth rate per year.
    The Nuclear Energy Institute believes that to meet future 
electricity demands requires and energy policy that combines 
conservation and efficiency measures with major investments in 
generating plants, transmission lines and other infrastructure 
components like pipelines. We also believe that diversity of 
fuel type and technology is necessary to ensure reliability, 
hedge against fuel cost volatility and meet our environmental 
goals.
    Nuclear energy as our Nation's second largest source of 
electricity and our largest source of electricity that doesn't 
emit greenhouse gases or any other air pollutants regulated by 
the Clean Air Act, is already a major factor in meeting our 
energy needs and in satisfying our environmental goals, and we 
are committed to doing more in the future.
    To satisfy this electricity demand and ensure that nuclear 
energy is available when needed, the U.S. nuclear industry is 
implementing a three-part program. First, maintaining the 
contribution from our existing plants through license renewal. 
We expect all of our existing plants will pursue license 
renewal. Second, expanding output from existing nuclear units 
by continuing improve efficiency and reliability and by 
investing the capital required to increase the rate of capacity 
of the units. This program has been so successful to date that 
over the last 10 years improved efficiency and upgrades at our 
existing plants has added the equivalent of 22,000 megawatts of 
new generating capacity to the grid.
    Finally, we are moving forward toward construction of new 
nuclear plants. Just last month, our industry announced the 
vision 2020 goal of adding 50,000 megawatts of new nuclear 
capacity by the year 2020. The industry is working together to 
ensure that new nuclear plants in the United States will be 
even safer, more reliable and more cost-efficient than our 
current plants, which are already setting standards of 
excellence on all of these fronts.
    The industry is pursuing two parallel approaches to deploy 
new plants. In both paths, we will be looking at building 
families of standardized plants. On one path, we are looking at 
deploying the new reactor designs already certified by the NRC 
or derivatives of those designs. Also, in addition to the three 
new reactor designs already certified, several companies, as 
you will hear later from this panel, are developing advanced 
gas-cooled reactors. These designs would also be standardized 
and modular in nature, with each module being much smaller than 
our current reactor size. We expect license applications for 
new plants will be filed over the next few years.
    Leadership support from this committee in the past has been 
instrumental in establishing a more effective licensing process 
for new plants. And continued support from the committee will 
be instrumental in the success to be achieved in the future. 
Examples of areas where Congress could be helpful include 
continuation of the Government/industry partnership to pursue 
resolving technical and/or regulatory issues associated with 
new nuclear plant designs and validating the new licensing 
process. We believe there are a number of amendments to the 
Atomic Energy Act that would modernize its provisions to 
reflect the new competitive market situation that the industry 
faces.
    Continued progress on implementing the Government's 
responsibility for waste management, particularly as related to 
fulfilling its contractual obligations to nuclear generators 
will be essential. I was pleased to hear that both the chairman 
and ranking member are committed to taking the Nuclear Waste 
Fund off-budget. We would certainly fully support that.
    Finally, changes to tax laws to allow quicker recovery of 
capital investment, including such techniques as accelerated 
depreciation and possibly investment tax credits, may be very 
helpful.
    Let me now turn to Price-Anderson renewal. The Price-
Anderson Act is the most comprehensive, effective liability 
protection law in the world. It has been proved effective for 
nearly 45 years, and over that period has been renewed 3 times 
by Congress; in many respects, thanks to the leadership 
exhibited by members of this committee. The industry fully 
supports renewal of Price-Anderson Act. The industry also 
recommends that the law be renewed permanently. In a response 
to Chairman Tauzin's question, we believe it should be done as 
soon as possible.
    The Price-Anderson Act does support our Nation's program to 
build new nuclear power plants. The law provides effective, no-
fault insurance for the public, it ensures the availability of 
money for claims immediately in the event of a reactor 
accident, and it provides congressional authority to provide 
additional funding for claims if more than the $9.5 billion 
immediately available from the industry is not sufficient.
    Over the 45 years that the Price-Anderson Act has been law, 
no taxpayer dollars have been paid for Price-Anderson coverage 
related to the commercial nuclear industry--none. In fact, the 
Government has received $21 million in payments from the 
industry as part of collecting Price-Anderson premiums. And 
over the entire history of the act, the total payments made by 
the industry insurance, including those related to the accident 
at Three Mile Island, is less than $190 million. That is 
compared to the $9.5 billion that the law requires to be 
available.
    In conclusion, renewal of the Price-Anderson Act is not 
only required to ensure comprehensive third-party liability 
protection for the public, but as you will hear later from 
other members of the panel, it is absolutely essential to 
ensure that the Government will be able to effectively retain 
contractors to work at Department of Energy facilities.
    I thank you for the opportunity to testify today and look 
forward to answering your questions. Thank you.
    [The prepared statement of Marvin S. Fertel follows:]
Prepared Statement of Marvin S. Fertel, Senior Vice President, Business 
                  Operations, Nuclear Energy Institute
    Mr. Chairman, members of the subcommittee, I am Marvin Fertel, 
Senior Vice President of the Nuclear Energy Institute. I am pleased to 
have this opportunity to testify on the prospects for nuclear energy in 
the United States, and the policy initiatives necessary to ensure that 
our nation derives the greatest possible benefit from nuclear energy. 
Those policy initiatives include renewal of the Price-Anderson Act, and 
federal government support for nuclear energy research and development 
(R&D).
    The Nuclear Energy Institute (NEI) is the U.S. nuclear energy 
industry's Washington-based policy organization. NEI represents 270 
members with a broad spectrum of interests, including every U.S. 
electric company that operates a nuclear power plant. NEI's membership 
also includes nuclear fuel cycle companies, suppliers, engineering and 
consulting firms, national research laboratories, manufacturers of 
radiopharmaceuticals, universities, law firms and labor unions.
    The nuclear energy industry commends you, Mr. Chairman, and the 
members of this subcommittee, for devoting this hearing to a discussion 
of the value of nuclear energy. Today, America's 103 nuclear power 
plants are the safest, most efficient and most reliable in the world. 
Nuclear energy is the second largest source of electricity in the 
United States, and the nation's largest source of emission-free 
electricity generation. The industry last year reached record levels of 
safety, reliability, efficiency and output.. In our view, increasing 
nuclear energy's contribution to U.S. electricity supply is not an 
option. It is essential to sustain economic growth, meet the 
electricity needs of our growing population, and satisfy our nation's 
clean air and environmental goals.
                the outlook for new nuclear power plants
    Demand for electricity in the United States is growing rapidly. The 
Department of Energy's Energy Information Administration estimates that 
our nation will need an additional 393,000 megawatts of additional 
generating capacity between now and 2020, assuming average growth in 
electricity demand of 1.8 percent per year. At 2.5 percent annual 
growth, which is closer to the growth rates experienced during the 
1990s, the United States will require an additional 564,000 megawatts 
to meet new electricity demand and replace aging power plants that have 
reached the end of their useful life.
    To satisfy this electricity demand, and ensure that nuclear energy 
is available when needed, the U.S. nuclear industry is implementing a 
three-part program:

1. maintaining the contribution from its existing plants through 
        license renewal;
2. expanding the output from the existing nuclear units by continuing 
        to improve efficiency and reliability, and by investing the 
        capital required to increase the rated capacity of the units; 
        and
3. laying the groundwork for construction of new nuclear plants.
    The nation's largest nuclear generating companies, working with 
NEI, are implementing a broad-based plan to create the business 
conditions necessary for construction of new nuclear power plants. The 
plan includes: (1) a number of initiatives to reduce the initial 
capital cost of new nuclear power plants; (2) programs to create a 
stable licensing regime and reduce regulatory uncertainties, and (3) a 
series of initiatives to build support for new nuclear power plants 
among policymakers, the media and local communities around prospective 
sites for new nuclear power plants.
    The companies intent on starting construction of new nuclear power 
plants in the United States within the next five years are doing so 
because new nuclear capacity represents a solid business opportunity. 
For an electricity generating company, new nuclear power capacity 
represents:

1. a reliable source of electricity with low ``going-forward'' or 
        ``dispatch'' costs;
2. a high level of forward price stability and protection against the 
        fuel price volatility that impacts gas-fired power plants; and
3. protection against possible escalation in environmental requirements 
        imposed on fossil-fueled power plants. For companies already 
        operating coal-fired or gas-fired power plants, new nuclear 
        capacity reduces the cost of clean air compliance that might 
        otherwise be imposed on that coal- and gas-fired capacity.
    The 1992 Energy Policy Act, enacted during the first Bush 
Administration, completely overhauled the licensing process for new 
nuclear plants so that all design, safety and site-related issues are 
resolved before capital is invested. The chairman of this subcommittee, 
Mr. Barton of Texas, was a principal author of this major improvement 
to the licensing process. The new approach allows NRC (1) to evaluate 
and pre-approve a prospective site for a new nuclear plant; (2) to 
issue a single license to construct and operate a new nuclear plant if 
a company uses a certified design and a pre-approved site; and (3) to 
``certify'' a standardized design. Certification is a formal rulemaking 
process. It requires a substantial up-front investment to prepare a 
reactor design--complete and detailed enough to satisfy the NRC that it 
meets all necessary safety standards.
    Three reactor designs--a 1,300-megawatt advanced boiling water 
reactor, a 1,300-megawatt pressurized water reactor, and a 600-megawatt 
pressurized water reactor--have been certified by the NRC. Several of 
these designs have already been deployed overseas, which testifies to 
the fact that U.S. nuclear technology remains at the leading edge 
worldwide. Japan has already built two advanced boiling water reactors, 
and will build more. Taiwan is building two advanced boiling water 
reactors. And South Korea is building variants of the large pressurized 
water reactor.
    The U.S. nuclear industry is pursuing two parallel approaches to 
new nuclear power plants:

1. Preparing to deploy one of the three new reactor designs already 
        certified by the NRC, or derivatives of those designs. This 
        initiative includes a systematic program to reduce the initial 
        capital cost of these new designs--through improved 
        construction techniques, faster construction schedules, 
        innovative approaches to project structure or, in the case of 
        one of the three designs, increasing the power output from 600 
        megawatts to 1,000 megawatts.
2. In addition to the three new reactor designs already certified, 
        several companies are developing advanced gas-cooled reactors, 
        including an international consortium--that includes Exelon and 
        British Nuclear Fuels, the parent of Westinghouse--which is 
        looking at a smaller, modular reactor for deployment in the 
        United States. Exelon has launched an aggressive program to 
        commercialize this 110-megawatt modular reactor. The project is 
        still in the feasibility stage, but Exelon is proceeding on the 
        assumption that economic and technical feasibility will be 
        established, and is developing a strategy that will lead to the 
        first U.S. order, license application, and construction.
    The industry is committed to validating both the economic 
performance of the new plants, and the licensing process for them. Over 
the next year, for example, a group of companies will begin a program, 
coordinated through the Nuclear Energy Institute, to address a number 
of generic issues associated with the concept of early site approval, 
ultimately leading to a formal application to the NRC to approve one or 
more sites.
    The U.S. nuclear energy industry estimates that new nuclear power 
plants could be built in the United States for between $1,000 and 
$1,200 per kilowatt of capacity. At this capital cost 1 of 
$1,000-1,200 per kilowatt of capacity, new nuclear power units are 
fully competitive with the other alternatives for baseload electricity 
production.
---------------------------------------------------------------------------
    \1\ To ensure a common basis for comparison, the capital costs of 
electric generating technologies are expressed in dollars per kilowatt 
of capacity. The capital costs used in such comparisons are so-called 
``overnight'' capital costs--i.e., they assume the plant is built 
``overnight'' and thus do not include interest charges and financing 
costs.
---------------------------------------------------------------------------
    The alternatives to new nuclear plants include:

1. Conventional coal-fired power plants with a full suite of 
        environmental controls. Largely because of the significant 
        increase in the cost of natural gas, which has increased the 
        cost of electricity from gas-fired power plants, a growing 
        number of new coal-fired projects are being proposed. These 
        conventional coal-fired plants typically have capital costs in 
        the range of $1,000-1,100 per kilowatt of capacity.
2. The so-called ``clean coal'' technologies, which have capital costs 
        in the range of $1,200-1,500 per kilowatt of capacity. Over 
        time, as more of these atmospheric fluidized bed plants are 
        built, the technology developers expect to be able to reduce 
        the capital cost. Their current target is $1,000-1,200 per 
        kilowatt.
      Other ``clean coal'' technologies have higher capital costs than 
        atmospheric fluidized bed combustion. An integrated 
        gasification combined cycle (IGCC) 2 plant currently 
        has a capital cost of approximately $1,800 per kilowatt for the 
        first plants built, according to estimates from the technology 
        developers and data from the Department of Energy's clean coal 
        technology program. The technology developers hope to reduce 
        this capital cost to $1,200-1,500 as the technology matures and 
        more of these plants are built.
---------------------------------------------------------------------------
    \2\ Integrated gasification combined cycle is a multi-step process 
in which coal is gasified, and the resulting fuel gas is used to fire a 
conventional combined-cycle power plant.
---------------------------------------------------------------------------
3. Combined-cycle gas-fired power plants, which have capital costs in 
        the range of $600-700 per kilowatt of capacity. Unlike the 
        nuclear and coal-fired technologies, however, gas-fired power 
        plants are extremely sensitive to fuel prices. Economic 
        analysis shows that a new nuclear unit at $1,000 per kilowatt 
        of capacity is competitive with a new gas-fired combined cycle 
        plant fueled with gas at $4-5 per million Btu. (Although 
        wellhead gas prices in the spot market have slumped below $4 
        per million Btu in recent weeks, the cost of gas delivered to 
        electricity generators remains well above $5 per million Btu in 
        all major consuming regions of the United States except 
        California. In California, delivered prices for natural gas are 
        considerably higher, in the $10-15 per million Btu range.)
    Like renewable energy, conventional coal-fired power plants and 
advanced ``clean coal'' technologies, nuclear power is a capital-
intensive technology. Large new nuclear power plants--of the 1,000-
megawatt 3 size now operating--would cost approximately $1 
billion each, and would thus represent a substantial investment risk 
for the company or companies that build them.
---------------------------------------------------------------------------
    \3\  A 1,000-megawatt power plant will serve the needs of 
approximately 650,000 households.
---------------------------------------------------------------------------
    Private companies would only undertake investments of this size if 
they were convinced that new nuclear power plants, once built, would be 
competitive with other sources of electricity. Given the significant 
public policy benefits of nuclear energy, however, limited policy 
initiatives are appropriate for new nuclear power plants to stimulate 
companies to invest in new nuclear plants sooner and in larger numbers 
than they otherwise would; and to reduce the investment risk associated 
with construction of new nuclear power plants.
    The policy initiatives necessary to stimulate construction of new 
nuclear generating capacity include:

1. Creation of a government/industry partnership to pursue two short-
        term objectives: resolving technical and/or economic issues 
        associated with the new nuclear plant designs, and validating 
        the new licensing process--verifying that it works as intended 
        and will not place private sector investment at risk. This 
        initiative will require a modest additional federal investment 
        in nuclear energy research and development.
2. Changes to the tax laws to reduce the investment risk associated 
        with new nuclear plant construction and to allow quicker 
        recovery of capital investment, including such techniques as 
        accelerated depreciation and an investment tax credit.
                   renewal of the price-anderson act
    Congress should renew the Price-Anderson Act as soon as possible, 
and it should provide an indefinite renewal. Price-Anderson is a proven 
framework that has worked for nearly 45 years. Given this proven 
record, Congress should renew it indefinitely. If needed, Congress can 
re-open the law at any time if modifications are needed. In addition, 
Congress can request periodic updates on the status of Price-Anderson 
Act implementation from the NRC in order to provide a basis for change 
if necessary.
    The Price-Anderson Act of 1957, signed into law as an amendment to 
the Atomic Energy Act, provides for payment of public liability claims 
related to any nuclear incident. In its 1998 report to Congress, the 
Nuclear Regulatory Commission said that the Price-Anderson Act has 
``proven to be a remarkably successful piece of legislation'' that has 
grown in depth of coverage and that proved its viability in the 
aftermath of the Three Mile Island accident.
    Since the inception of the Price-Anderson Act, the law has been 
extended three times for successive 10-year periods, and in 1988 it was 
extended for 15 years. Unless Congress renews the Price-Anderson Act, 
it will expire on Aug 1, 2002.
    The Price-Anderson Act is a proven law that works in these 
important ways:

 Assures the availability of billions of dollars to compensate 
        affected individuals who suffer a loss as a result of a nuclear 
        incident.
 Establishes a simplified claim process for the public to 
        expedite recovery of losses.
 Provides for immediate emergency reimbursement for costs 
        associated with any evacuation of residents near a nuclear 
        power plant.
 Establishes two tiers of liability for each nuclear incident 
        involving commercial nuclear energy and provides a guarantee 
        that the federal government will review the need for 
        compensation beyond that explicitly required by law. The Price-
        Anderson framework provides $9.5 billion of coverage in the two 
        levels of protection.
    For the primary level, the law requires nuclear power plant 
operators to buy nuclear liability insurance available or provide for 
an equal amount of financial protection. That amount of insurance is 
$200 million.
    For the second level, power plant operators are assessed up to $88 
million for each accident that exceeds the primary level at a rate not 
to exceed $10 million per year, per reactor for a total of $9.3 
billion. The NRC increases the level for inflation every five years. An 
important feature of the law is that it spreads the liability for a 
major accident across the entire industry. In addition, Congress may 
establish more assessments if the first two levels of coverage are not 
adequate to cover claims. The Price-Anderson Act framework provides the 
same level of liability for DOE facilities as for the commercial 
sector.
    Research or small power reactors are required to self-insure at 
least the first $250,000 of any nuclear incident. The federal 
government also provides up to $500 million of indemnity. At present, 
there are no small power reactors in operation that qualify for this 
coverage. But the groundwork is being laid to design power reactors 
that would be smaller, safer and more cost effective to build. That 
very extensive research and development would be jeopardized if the 
Price-Anderson Act is not renewed expeditiously.
    The costs of Price-Anderson coverage are included in the cost of 
electricity, they are not a taxpayer expense or federal subsidy. That 
means the nuclear industry bears the cost of insurance, unlike the 
corresponding costs of some major power alternatives. For example, 
risks from hydropower (dam failure and flooding) are borne directly by 
the public. The 1977 failure of the Teton Dam in Idaho caused $500 
million in property damage. The only compensation for this event was 
about $200 million in low-cost government loans.
    In addition to the approximately $180 million paid in claims by the 
insurance pools since the Price-Anderson Act went into effect, the law 
has resulted in payment of $21 million back to the government in 
indemnity fees.
    The NRC and DOE has recommended renewal of the Price-Anderson Act 
to Congress. The NRC, in its 1998 report, describes the benefits the 
law provides to the public. The agency says that ``the structured 
payment system created to meet the two objectives stated in the Price-
Anderson Act has been successful. The Commission believes that in view 
of the strong public policy benefits in ensuring the prompt 
availability and equitable distribution of funds to pay public 
liability claims, the Price-Anderson Act should be extended to cover 
future as well as existing nuclear power plants.
    The Department of Energy in 1999 has also recommended renewal of 
the law. The Energy Department said that its indemnification ``should 
be continued without any substantial change because it is essential to 
DOE's ability to fulfill its statutory missions involving defense, 
national security and other nuclear activities . . .''
    The Price-Anderson Act has withstood court challenges dating back 
to 1973 when the Carolina Environmental Study Group, the Catawba 
Central Labor Union and 40 individuals brought suit against Duke Power 
Co., which was building nuclear power plants in North and South 
Carolina.
    In June 1978, the U.S. Supreme Court upheld the constitutionality 
of the law. In an opinion written by Chief Justice Warren Burger, the 
court held that because the liability limit was created to encourage 
private sector construction of nuclear power plants it was neither 
arbitrary nor irrational.The industry recommends an indefinite renewal 
of the Price-Anderson Act. Like any other legislation, if Congress 
wants to reconsider and amend the law it can do so at anytime. We would 
encourage Congress to hold periodic oversight hearings and, if 
required, modify the law accordingly.
    The industry believes that the retrospective premium should remain 
at $10 million per nuclear plant. The NRC initially recommended it be 
increased to $20 million, based in part on the assumption that 25 
nuclear plants would be closed without relicensing, and that total 
insurance coverage would decrease as a result. However, most nuclear 
plants will be relicensed. NRC Chairman Richard Meserve, in a May 11, 
2001 letter to members of Congress, retracted this recommendation based 
on the number of plants seeking license renewal. The NRC no longer 
believes that the increase in the retrospective premium to $20 million 
is necessary.
     other federal government policy support for new nuclear plant 
                              construction
    In addition to renewal of the Price-Anderson Act, the nuclear 
industry has identified several areas where continuing, sustained 
federal government policy support would assist the construction of new 
nuclear power plants. These areas include:
    Nuclear Energy R&D. As noted above, the industry believes it would 
be appropriate to create a government/industry partnership to share the 
modest cost of resolving remaining technical or economic issues, and to 
validate the new licensing process for new nuclear plants. An expert 
working group assembled by the U.S. Department of Energy to advise the 
agency on actions necessary for near-term deployment of new nuclear 
power plants believes that validating the new licensing process, and 
other similar pre-commercial activities, will require approximately $36 
million in the 2002 fiscal year, and an estimated $47 million in FY 
2003.
    It is appropriate for the federal government to bear part of the 
cost of these programs for two reasons. First, these are generic, pre-
commercial activities that provide no financial return to private 
industry. And second, these pre-commercial programs are designed to 
assure that federal government regulations work as intended and will 
not place private industry investment at risk.
    It is equally crucial that industry and the federal government 
continue to invest in nuclear technology research and development for 
the United States to remain the world leader in nuclear technology. 
This includes continuing support for the Department of Energy's 
existing nuclear energy R&D programs, in line with the funding levels 
recommended by the President's Committee on Advisors on Science and 
Technology (PCAST), and the Secretary of Energy's Nuclear Research 
Advisory Committee.
    Continued Progress in Waste Management. Expansion of nuclear 
energy's contribution to U.S. electricity supply also requires 
continued progress in the federal government's program to manage used 
nuclear fuel, and to develop storage and disposal facilities for that 
fuel. This includes adherence to programmatic milestones, including the 
Secretary of Energy's site suitability determination scheduled for 
later this year, and a Presidential determination as soon after that as 
possible.
    Amendments to the Atomic Energy Act. The nuclear industry also 
believes the time has come to update the Atomic Energy Act so that the 
NRC is positioned to meet the challenges of the 21st century. This 
would include:

1. removing the statutory requirement that NRC conduct antitrust 
        reviews of of applications to build new nuclear plants;
2. removing the statutory prohibition on foreign ownership of U.S. 
        commercial nuclear power planbts; and
3. revising the Atomic Energy Act to ensure that small, modular nuclear 
        reactors are not subjected to excessive levels of liability 
        under the Price-Anderson Act's secondary protection scheme.
                               conclusion
    The industry clearly understands what must be done to preserve 
nuclear energy's emission-free contribution to the nation's electricity 
supply.
    Nuclear energy is the only large source of electricity that is both 
emission-free and readily expandable. Its exemplary safety record, high 
reliability, low operating costs and price stability make nuclear 
energy a vital fuel for the future. That is clear from the current U.S. 
electricity situation, which is marked by thinning capacity margins as 
demand outruns available supply, and by punishing volatility both in 
electricity prices and the price of natural gas used to generate 
electricity.
    As electricity demand continues to rise, nuclear energy will be 
even more important to American consumers.
    Thank you for giving me this opportunity to share the industry's 
perspective on the important nuclear energy issues the subcommittee is 
focusing on in this hearing.

    Mr. Largent [presiding]. Thank you, Mr. Fertel.
    Mr. Jack Skolds, chief operating officer from Exelon 
Nuclear. You have 5 minutes to summarize your statement.

                    STATEMENT OF JACK SKOLDS

    Mr. Skolds. Thank you, Mr. Chairman and members of the 
subcommittee, for the opportunity to be here today.
    As Exelon examines our future sources of generation, we 
judge potential projects on two sets of criteria: First, the 
technology must be safe, economic and clean; and second, there 
must be a stable and predictable regulatory environment which 
will make the projects acceptable to the investment community.
    We believe we have found the technology that meets the 
first set of criteria in the Pebble Bed Modular Reactor, the 
PBMR. Exelon is a partner in a multi-national effort underway 
in South Africa to develop the technology, which is a gas-
cooled 110 to 125 megawatt reactor that is an evolution of an 
earlier technology. However, we believe that despite the 
tremendous advances made by the NRC in recent years, there are 
a number of regulatory and legislative changes needed at the 
Federal level to meet the second criteria: a stable and 
predictable regulatory environment.
    These changes generally fall into one of two categories: 
Changes necessitated by the changed nature of the electric 
industry in the United States, and changes required as a result 
of the PBMR's design differences from traditional reactors.
    Now, on the first set of changes, the electric industry has 
changed. If Exelon builds a PBMR, it will be what is known as a 
merchant nuclear plant that will not depend on a regulated 
utility rate structure. The financial risk of the plant will 
rest on Exelon and our shareholders, not on the ratepayers. And 
as a result of the dramatic changes in which the utilities and 
power plant owners are regulated at the State and Federal 
level, many laws and regulations related to the oversight of 
nuclear power plants are plainly outdated. Current NRC 
regulations were promulgated when it was anticipated that only 
regulated electric utilities would build nuclear plants.
    If these outdated regulations are not changed, the 
financial burden imposed on merchant plants, like the PBMR, 
clearly has the potential to make the economics untenable. Some 
of the key regulations that need to be addressed include the 
financial protection requirements of 10 CFR Part 140, the 
decommissioning funding requirements of 10 CFR Part 50.75 and 
the antitrust review requirements of 10 CFR Part 50.33(a).
    My written statement includes a more complete explanation 
of each of these issues. And most of the changes we are seeking 
are to remove duplicative regulatory requirements and to assure 
that merchant plants with financially responsible owners are 
treated similarly to utility-owned plants.
    Now concerning the PBMR and the changes necessitated by 
this design, the PBMR is a small, modular reactor that produces 
roughly one-tenth of the power of a conventional 1,100 megawatt 
light water reactor, and the technology is designed so that 10 
modules can be operated from a single control room. Small 
modular plants were not contemplated when the current 
regulations were put in place. The financial burden imposed on 
small, modular plants by existing regulations has the potential 
to make the PBMR uneconomic.
    The primary issue is whether the NRC will issue a separate 
license for each 110 to 125 megawatt PBMR module or whether the 
Commission will issue a single license for a multiple-module 
site. A number of related issues flow from this central 
question: The assessment of annual NRC fees on a per reactor 
basis, the treatment of modular facilities for purposes of 
retroactive liability assessment under Price-Anderson and 
staffing requirements under 50.54(m).
    The annual fees assessed by the NRC on a per reactor basis 
should be revised to recognize the differences between the 
small, modular PBMR and a much larger light water reactor. The 
resources required to regulate a PBMR module are significantly 
less than those of a large reactor. Similarly, Price-Anderson 
should be interpreted such that the PBMR are treated in a 
manner that recognizes the inequity of treating individual PBMR 
modules as separate facilities. The NRC is currently examining 
whether such an interpretation is possible or whether the 
Price-Anderson Act will need to be amended in order to 
accomplish that goal. We will keep the subcommittee members 
advised as our dialog with the Commission progresses on this 
issue.
    A final area that is unrelated to the small, modular nature 
of the PBMR is the issue of emergency planning zone 
requirements in 10 CFR Part 50.47. Exelon believes that the 
fundamental safety differences between a PBMR and current 
reactors may justify a smaller emergency planning zone for 
Pebble Bed Reactor sites. Mr. Chairman, I would note that 
Exelon has filed White Papers on many of these issues with the 
Nuclear Regulatory Commission, and we would be happy to share 
those with the committee upon request.
    In conclusion, let me touch on a few final issues that are 
not technology-specific. If new nuclear plants are to be built 
in the U.S., the Federal Government must address these 
additional issues: First, as you have heard from other 
witnesses, we must renew Price-Anderson; second, Congress and 
the administration must take steps to assure the existence of a 
competitive nuclear fuel market; and finally, the 
administration should move forward expeditiously with Yucca 
Mountain as a permanent repository for used nuclear fuel.
    Mr. Chairman, thank you again for the opportunity, and I 
look forward to any questions.
    [The prepared statement of Jack Skolds follows:]
  Prepared Statement of Jack Skolds, Chief Operating Officer, Exelon 
                                Nuclear
    Mr. Chairman, Members of the Subcommittee: Thank you for the 
opportunity to appear before you today to discuss policy issues related 
to the licensing of advanced nuclear power plants in the United States. 
I am Jack Skolds, Chief Operating Officer of Exelon Nuclear, the 
nuclear division of Exelon Generation Company. Exelon is the largest 
nuclear generation operator in the country with approximately 20% of 
the nation's nuclear generation capacity, and the third largest private 
nuclear operator in the world.
    As Exelon examines future sources of generation, we judge potential 
projects on two sets of criteria: first, the technology must be safe, 
economic, and clean; and second, there must be a stable and predictable 
regulatory environment that will make the project acceptable to the 
investment community.
    Exelon believes that we have found a technology that meets the 
first set of criteria in the Pebble Bed Modular Reactor, also called 
the PBMR. Exelon is a partner in a multi-national effort underway in 
South Africa to develop the technology, which is a gas-cooled 110 to 
125 megawatt reactor that is an evolution of an earlier technology 
built and operated in Germany.
    However, Exelon believes that--despite the tremendous advances made 
by the Nuclear Regulatory Commission in recent years--there are a 
number of regulatory and legislative changes needed at the Federal 
level to meet the second criteria: a stable and predictable regulatory 
environment that will make the project acceptable to the investment 
community.
    Why are changes necessary? Simply put, the current regulatory and 
legislative structure governing nuclear power plants is obsolete, 
neither reflecting the realities of the markets in which new plants 
will operate nor accommodating the emergence of advanced technologies.
    My testimony today will address several changes I believe are 
necessary to ensure an acceptable regulatory environment. These changes 
generally fall into one of two categories: (1) changes necessitated by 
the changed nature of the energy industry in the United States; and (2) 
changes required as a result of the PBMR's design differences from 
traditional reactors. We believe that the Nuclear Regulatory Commission 
(NRC) has sufficient flexibility under existing law to address many--if 
not all--of these issues through rulemakings.
Changes Necessitated by the Changed Nature of the Energy Industry
    The energy industry and the regulatory environment in which energy 
companies operate today are fundamentally different than just a few 
years ago. The deregulation of wholesale power markets sparked by 
enactment of the Energy Policy Act of 1992, along with retail 
deregulation in some states, has led to the creation of hundreds of 
generation companies operating outside the traditional cost-of-service 
regulatory arena. If Exelon builds a PBMR, it will be what is known as 
a ``merchant'' power plant that will not depend on a regulated utility 
rate structure. The financial risk of the plant will rest on Exelon and 
our shareholders, not on ratepayers.
    As a result of the dramatic changes in the way that utilities and 
power plant owners are regulated at the state and Federal level, many 
laws and regulations related to the oversight of nuclear power plants 
are plainly outdated. Current NRC regulations were promulgated when it 
was anticipated that only regulated electric utilities would build 
nuclear plants.
    If these outdated regulations are not changed, the financial burden 
imposed on merchant plants clearly has the potential to make the 
economics untenable. Some of the key regulations that need to be 
addressed include the financial protection requirements of 10 CFR Part 
140, the decommissioning funding requirements of 10 CFR Part 50.75, and 
the antitrust review requirements of 10 CFR Part 50.33a.
    Most of the changes we are seeking are to remove duplicative 
regulatory requirements and to assure that merchant plants with 
financially responsible owners are treated similarly to utility-owned 
plants.
Financial Protection
    Current NRC financial protection regulations require an applicant 
for a license to provide information on its financial qualifications to 
build and operate a reactor. While electric utilities are exempt from 
this requirement, merchant plant owners would be required to submit 
financial qualification data for each plant they seek to build. Exelon 
has recommended that the NRC initiate a rulemaking to revise its 
financial qualification regulations to enable certain categories of 
merchant generating companies to have the same status as utilities to 
avoid duplicative reviews for subsequent applications. The NRC should 
initiate rulemaking to establish specific criteria that would enable 
non-utilities to demonstrate financial qualification without providing 
the detailed information currently required by NRC regulations and 
guidance each time a license application is submitted.
Decommissioning
    10 CFR Sec. 50.75 requires licensees to establish financial 
assurance for decommissioning and provides six methods for providing 
financial assurance. These methods include prepayment, an external 
sinking fund, surety, insurance, or other ``equivalent'' method. 
However, the regulations essentially restrict use of external sinking 
funds to licensees that recover decommissioning funds through rates or 
a non-bypassable charge. While this system works well for utilities 
operating in a regulated cost-of-service market, it fails to 
accommodate merchant plants selling into the wholesale power market.
    Exelon is evaluating the possibility of seeking NRC approval for an 
alternative decommissioning funding mechanism in which Exelon would 
make partial prepayment (5%, for example) of the total decommissioning 
cost estimate and annual contributions for the remainder spread over 20 
years. Such a mechanism would substantially reduce the initial costs 
associated with the PBMR while still providing assurance of funds for 
decommissioning at the time a module is likely to be decommissioned. 
NRC should initiate rulemaking to explicitly authorize the use of this 
and other alternative decommissioning funding methods being developed 
by the industry.
    If NRC were to require 100% prepayment of the decommissioning cost 
estimate for new plants, such prepayment might jeopardize the economic 
viability of any new plant that is to be operated on a merchant basis.
Antitrust
    Section 105 of the Atomic Energy Act (AEA) requires that the NRC 
conduct an antitrust review, seek the advice of the Attorney General, 
and if necessary conduct a hearing on antitrust matters in connection 
with applications for a construction permit (CP) or combined operating 
license (COL) for a nuclear power reactor. As the NRC has noted in 
previous recommendations to the Congress, these antitrust requirements 
are duplicative and burdensome. The Department of Justice, the Federal 
Trade Commission, and--in the case of merchant power plants--the 
Federal Energy Regulatory Commission, each have jurisdiction over 
antitrust laws. The NRC has recommended that the Atomic Energy Act be 
amended to delete these antitrust provisions.
    Exelon believes that, at the very least, the NRC should initiate a 
proceeding, and seek the approval of the Attorney General, to determine 
that the issuance of licenses to merchant plant applicants will not 
significantly affect such applicants' activities under the antitrust 
laws. NRC should make a determination that merchant plant applicants 
are excepted from antitrust review. The rule should state that an 
applicant need only provide information sufficient for the NRC to make 
a determination as to whether the applicant qualifies as a member of 
the excepted class. This model is consistent with the approach pursued 
by NRC when it made its determination that it would not conduct 
antitrust reviews in connection with license transfers.
    The antitrust review provisions of Section--105 have limited 
applicability to the modern electric industry, and they serve no useful 
purpose with respect to proposed operation of a nuclear reactor on a 
merchant plant basis. Changes in the electric industry--including the 
emergence of a competitive wholesale electric market and mandated open 
access to the transmission system--reduce, if not eliminate, the 
incremental protection of competition that the NRC provides through its 
antitrust review for license applications for merchant plants.
Changes Necessitated by the Nature of the PBMR Design
    The second category of changes results from the fact that the PBMR 
is fundamentally different both from the current fleet of light water 
reactors and from the advanced designs that have been certified by the 
NRC in recent years. The PBMR is a small, modular reactor that produces 
roughly one-tenth of the power of a conventional 1,100 megawatt light 
water reactor, and the technology is designed so that up to 10 modules 
can be operated from a single control room.
    Small modular plants were not contemplated when current regulations 
were put in place. The financial burden imposed on small, modular 
plants by existing regulations has the potential to make the economics 
of the PBMR untenable. The primary issue is whether the NRC will 
consider each 110 to 125 megawatt PBMR module as an individual reactor 
or facility or whether the Commission will treat a multiple-module site 
as a single facility for licensing purposes.
    A number of related issues flow from this central question: the 
assessment of annual NRC fees on a per reactor basis under 10 CFR 171, 
the treatment of modular facilities for purposes of retroactive 
liability assessments under the Price-Anderson Act, and staffing 
requirements under 10 CFR Sec. 50.54(m).
Annual Fees
    The annual fees assessed by the NRC on a per reactor basis should 
be revised to recognize the differences between a small, modular PBMR 
and a much larger light water reactor. The resources required to 
regulate a PBMR module are significantly less than those required to 
oversee a larger, more complex light water reactor.
Price-Anderson Act
    Similarly, the Price-Anderson Act should be interpreted so that 
Pebble Bed Modular Reactors are treated in a manner that recognizes the 
inequity of treating individual PBMR modules as separate facilities. 
The NRC is currently examining whether such an interpretation is 
possible or whether the Price-Anderson Act will need to be amended in 
order to accomplish that goal. We will keep the subcommittee members 
advised as our dialogue with the Commission progresses on this issue. 
Under the current NRC interpretation of Price-Anderson, a 10-module, 
1,100 megawatt PBMR site would have 10 times the potential retroactive 
liability of a single 1,100 megawatt light water reactor. Treating each 
PBMR module as an individual reactor would result in an unfair economic 
burden which would significantly hamper the economics of the 
technology.
Staffing Requirements
    In addition, existing NRC regulations specify minimum licensed 
operator staffing requirements. In general, the formula used to develop 
the staffing levels and the requirements on the location of operators 
are excessive for PBMRs. These requirements were developed when all 
operating nuclear power plants relied on active safety systems to 
mitigate accidents. The Pebble Bed technology relies on a ceramic fuel 
design that cannot suffer meltdown. In the PBMR, the reactor 
temperature never rises above 1600 degrees Celsius, even under a worst-
case loss of coolant accident. PBMR fuel, however, does not begin to 
degrade until temperatures reach 2000 degrees Celsius.
    Since the PBMR is a passive plant that does not require early 
operator intervention to mitigate accidents, staffing levels less than 
those indicated in existing regulations are appropriate for the PBMR. 
The Commission itself has recognized that an exemption from the 
staffing requirements may be warranted to provide for ``reduced 
staffing levels based on plant size, lack of complexity, or other 
unique factors.''
Emergency Planning Zones
    A final area that is unrelated to the small, modular nature of the 
PBMR is the issue of the emergency planning zone (EPZ) requirements in 
10 CFR Part 50.47. Exelon believes that the fundamental safety 
differences between a PBMR and current reactors may justify a smaller 
emergency planning zone for Pebble Bed reactor sites. Again, since the 
PBMR uses a ceramic fuel design that cannot suffer meltdown, the NRC 
should consider whether a smaller EPZ is merited.
    Exelon has presented White Papers on many of these issues to the 
Nuclear Regulatory Commission, and they are publicly available.
Transition Issues Facing New Nuclear Plants
    The licensing process which Exelon proposes to follow under 10 CFR 
Part 52 to obtain a combined construction and operating license for 
these plants has never been utilized. As a result, we expect that there 
will be a steep learning curve for both the NRC staff and ourselves on 
how to execute this process with resultant high costs and delays. 
Exelon is working with the NRC staff to develop the technical licensing 
framework for the PBMR. Existing regulations are written for light 
water reactors, and regulations will need to be developed for gas 
reactors, also at additional costs and potential delay.
    Exelon believes strongly that the development of the design and the 
cost to commercialize and build the PBMR should be borne by the PBMR 
partners. We anticipate that the partners will invest upwards of $600 
million of their own money to make the PBMR commercially viable with 
Exelon investing a significant additional amount to license and build 
the first PBMRs. There are, however, a number of first of a kind costs 
that Exelon will bear as the first licensee for this new technology 
that will flow directly to government agencies such as the NRC in the 
form of licensing fees and the national laboratories as consultants to 
the NRC. As stated earlier, we expect that the costs of licensing this 
technology will be higher than normal because of the unproven nature of 
the 10 CFR Part 52 licensing process and the need to create a gas 
reactor licensing framework. The technical expertise needed to review 
the PBMR application does not currently exist either in the NRC or in 
the national labs and will need to be developed. We believe it is 
appropriate for some level of government funding to be provided to fund 
the work of government agencies in these areas.
Generic Issues Related to New Nuclear Plants
    In concluding, let me touch on a few final issues that are not 
technology-specific. If new nuclear plants are to be built in the U.S., 
the Federal government must address three additional issues:
    First, Congress must renew the Price-Anderson Act, which will 
expire in August 2002. The Act represents a carefully balanced 
mechanism for providing a comprehensive liability scheme for nuclear 
activities while ensuring the prompt payment of claims for nuclear 
incidents.
    Second, Congress and the Administration must take steps to assure 
the existence of a competitive nuclear fuel market. One of the primary 
benefits of nuclear power is the low, stable cost of nuclear fuel. 
There are a number of pending developments that could jeopardize a 
competitive market for this material, including trade actions filed by 
USEC against enrichment service providers from Europe.
    Finally, the Administration should move forward expeditiously with 
its investigation of Yucca Mountain as a permanent deep-geologic 
repository for used nuclear fuel. Congress should support the continued 
characterization of Yucca Mountain by fully funding the 
Administration's budget request. As members of this committee are well 
aware, the Federal government is woefully behind schedule on this 
project despite having spent billions of dollars collected from utility 
customers.
    Mr. Chairman, thank you again for the opportunity to appear before 
the committee. I look forward to any questions you may have.

    Mr. Largent. Thank you, Mr. Skolds.
    Now we recognize Mr. George Davis, director of Government 
Programs Nuclear Systems with Westinghouse. Thank you, Mr. 
Davis, for being here.

                  STATEMENT OF GEORGE A. DAVIS

    Mr. Davis. Well, thank you, Mr. Chairman, and I appreciate 
the opportunity to be here today. I am also currently 
participating in DOE's Near Term Deployment Group, which is a 
topic I want to talk about in just a moment.
    The recent volatility we have seen in natural gas prices 
nationwide and certainly the electric power shortages we have 
seen in California have been a real wake-up call for power 
companies all over the country. And they are beginning to 
realize they can no longer continue to rely exclusively on 
natural gas as the only source of new power plant generating 
capacity. Nor can they ignore the erosion of power reserve 
margins.
    When you look at economic competitors to natural gas 
plants, the only two energy sources likely to be deployable in 
the near-term on a large scale are going to be coal and 
nuclear. However, when you compare against coal and nuclear 
burning plants--coal and gas burning plants, nuclear plants 
face a significant hurdle, because they have to go through the 
NRC licensing process before they can be introduced into the 
marketplace.
    Now despite the dramatic improvements that we have seen at 
the NRC in recent years, there is still a significant cost and 
uncertainty associated with going through that licensing 
process for new plants. The Commission has certified three 
standardized designs in the 1990's; however, the early site 
permit and combined operating licenses processes are still 
untested.
    Now, one of the standardized designs is already certified 
is our AP600. It is ready for the marketplace today, and it has 
an estimated construction cost of about $1,400 per kilowatt 
electric. Now, this would be competitive in today's U.S. market 
as long as electricity prices remained about where they are, 
with generating costs on the average of about 5 cents per 
kilowatt hour. However, if electricity prices should decline 
back to the levels we saw just a couple of years ago before gas 
prices went up, then we would need a lower cost alternative 
that is likely to be in the 3 cents to 4 cents per kilowatt 
hour range.
    Therefore, we began developing changes to the AP600 design 
to upgrade its power level from 610 megawatts all the way up to 
1,090. We found we could increase the size of the major 
components without necessarily increasing the footprint of the 
plant, therefore keeping the design changes to a minimum. The 
end result is that we can increase the power rating about 75 
percent while only increasing the capital cost about 13 
percent. This brings down the construction cost to less than 
$1,000 per kilowatt electric, which would make us very 
competitive, even if electricity prices do come back down to 
the 1999 levels.
    We are currently in a pre-application phase with the NRC, 
and if all goes as expected, we would hope to submit a complete 
application early next year and have the changes, or this new 
AP1000 design, certified by 2004.
    Now, this year, DOE also launched an initiative called the 
Technology Road Map for Generation IV reactors. They set up 
working groups comprised of representatives from industry, labs 
and academia that are carrying out this initiative under the 
guidance of an advisory committee called NURAC. And I am 
participating in one of those groups, the Near-Term Deployment 
Group. Our task is to identify nuclear plant designs that could 
be commercially put into operation in the United States by 
2010, and then to identify the technological and institutional 
gaps that must be completed to allow them to do so. Our final 
product is to be a report issued in September that will 
summarize these designs and the actions needed to bring them to 
market, including what DOE and NRC need to do.
    Although 2010 sounds like a long time away, we quickly 
realize that there are a number of activities that need some 
action right now. To have a plan in operation by 2010, pretty 
much all the licensing activities with the NRC need to be 
essentially completed by 2006, which isn't very far off. Our 
group issued an interim report that is basically identification 
of a number of activities that need attention in the fiscal 
year 2002 and fiscal year 2003 budgets. Specifically, we 
recommended about $36 million be included in DOE funding for 
fiscal year 2002 to be used for providing cost share and for 
reimbursement of NRC fees and research on the new plant 
activities.
    We believe there are a number of actions that Congress and 
the administration can take to provide an environment conducive 
to the expansion of nuclear energy. We don't ask any special 
favors for nuclear. We just would like to see a level playing 
field. We realize that nuclear has to compete in the 
marketplace on its own.
    First, we feel like Price-Anderson must be renewed for a 
number of obvious reasons. Next, we need to see progress on the 
disposal of high-level waste. We don't necessarily need to 
start burying waste, but we do need to know that there is an 
unambiguous path forward that will lead to resolution. We think 
the interim recommendations of the DOE Near-Term Deployment 
Group to provide $36 million in fiscal year 2002 funding should 
be implemented so that licensing of nuclear plants doesn't 
become a delay step in bringing new plants to market by 2010.
    When the group's final report is issued in September, we 
think its recommendations for future years should also be 
incorporated into government planning. Likewise, we need to 
think that--we think that the government also needs to make 
sure that NRC receives the resources that it needs to carry out 
licensing of new plants. And, finally, Congress and the 
administration should consider options for encouraging the 
first wave of new nuclear plants in the U.S. Since no plants 
have been ordered in this country in over 20 years, first-time 
startup costs and the financial risks will be significant 
hurdles for that first wave. Incentives, such as the one that--
some of the ones that Marv Fertel just mentioned, would go a 
long way in helping to bring those plants to market. Thank you.
    [The prepared statement of George A. Davis follows:]
 Prepared Statement of George A. Davis, Director, Government Programs, 
             Nuclear Systems, Westinghouse Electric Company
    Chairman Barton, Ranking Member Boucher and distinguished members 
of the Energy and Air Quality Subcommittee, my name is George Davis. I 
am Director of Government Programs for the Nuclear Systems division of 
Westinghouse Electric Company. I am also currently participating in 
DOE's Near Term Deployment Group, which I will discuss later. The 
Nuclear Systems division is responsible for designing and selling new 
nuclear plant projects. Besides supplying reactor systems for new 
plants, Westinghouse also provides services, plant safety and 
monitoring equipment, and fuel to operating nuclear plants worldwide. 
The company employs about 9,000 people, mostly in the U.S., including 
those of the former ABB Combustion Engineering that was merged into 
Westinghouse just last year.
    Westinghouse has a long and active history in supporting the 
commercialization of peaceful nuclear energy. We have provided about 
twenty five percent of the reactors operating worldwide. The number 
grows to about fifty percent, if we include Westinghouse licensees that 
use our technology. The bulk of nuclear plant construction activity is 
currently centered in South Korea, where there are ten units in 
operation based on our technology, six units under construction, and 
four more units in negotiation. We are also working on near term 
opportunities in Japan, China, and Finland. What we are becoming 
excited about now, however, is the possibility for a rebirth of the 
nuclear energy option here at home in the United States.
    Today, I would like to provide you with our company's views on what 
Congress and the Administration could be doing to provide an 
environment conducive to the expansion of nuclear energy in a way that 
allows nuclear energy to be economically competitive in the deregulated 
marketplace, while assuring that public safety and environmental 
protection are not compromised in any way. First, however, I would like 
to provide our perspectives on (1) the current environment for new 
nuclear plants in the U.S., (2) the major issues to be addressed before 
new plants can be deployed, and (3) what Westinghouse, the rest of 
industry, and the Department of Energy are all doing to address these 
issues.
The Current Environment for New Nuclear Plants in the U.S.
    With its roots in the Energy Policy Act of 1992, deregulation has 
been the great engine driving change in the electric power industry 
over the past decade. The sales of existing plants, coupled with 
consolidation of plant owners and suppliers, are creating a healthy, 
viable industry that is composed of larger, more efficient companies. 
Benefiting from the economy-of-scale (by operating and servicing a 
larger number of nuclear plants within a single organization), these 
companies will be in a position to handle the financial and 
technological challenges that must be managed, in launching the next 
generation of nuclear plants. Partly because of these consolidations, 
the operating costs and performance of the current fleet of nuclear 
plants have improved dramatically within the last several years. 
Conditions have improved so much that nuclear plants now operate at 
costs lower than coal burning plants (considering fuel plus operating & 
maintenance expenses).
    Another reason for these dramatic improvements must be credited to 
changes at the Nuclear Regulatory Commission. The NRC's move toward a 
more risk-informed, performance-based oversight process has 
significantly reduced the regulatory burden on plant operators, by 
focusing attention on the issues that are truly important to safety. 
Coupled with its timely review of license-extension applications, the 
NRC has created an atmosphere of optimism about the prospects for 
licensing new nuclear plants--without the delays and obstacles that 
plagued us in the 1980s.
    As air pollution and greenhouse gas production move to the 
forefront of the public's concern about the environment, there is a 
growing awareness that nuclear energy plants are quietly producing 
twenty percent of our nation's electricity without emitting any 
pollutants or greenhouse gases into the atmosphere. Coupled with the 
U.S. nuclear industry's exemplary safety record, it's not surprising 
that public support for nuclear energy is growing.
    Perhaps, the one dark cloud over our heads is the disposal of high-
level wastes. If there is not progress on this issue, public support 
could begin to erode. We don't necessarily need to start burying waste 
yet, but we do need to know that there is an unambiguous path forward 
that will lead to final resolution. This is not a problem unique to new 
nuclear plants. The high-level waste issue must get resolved somehow, 
because there is already waste in existence from the plants currently 
operating. Therefore, it is not a question of if the issue will be 
resolved. It must be a question of when.
    The recent volatility in natural gas prices, nationwide, and the 
electric power shortages in California are serving as a wakeup call to 
power companies all over the country. They cannot continue to rely 
almost exclusively on natural gas as the fuel source for new power 
plants. Nor can they ignore the erosion of reserve margins in their 
generating capacity. Many people would like to think that renewables 
could provide the major alternative to natural gas. Although they may 
play a rapidly increasing role in electricity generation, we have to 
acknowledge that they are currently producing less than one percent of 
our electricity supplies and that it is extremely unlikely that they 
will be able to provide a substantial share of our electricity, at 
competitive prices, within the foreseeable future. The cold hard 
reality is that there are only two energy sources likely to be 
deployable on a large scale, as economical competitors to natural gas 
plants. Those are coal and nuclear energy. If nuclear energy were 
removed from the list of alternatives, then we could expect to see a 
dramatic increase in the number of coal burning power plants being 
built over the coming years.
Issues Related to Deployment of New Nuclear Plants
    This leads us to the question: What will it take for new nuclear 
plants to be a viable alternative? In the deregulated markets that are 
evolving in the United States, economic competitiveness is an absolute 
requirement. Every issue must be reduced to a calculation of its cost 
and financial risk. In the end, investors will back the projects that 
offer the best financial return, with the least uncertainty. The 
successful economic performance of the operating nuclear plants has 
removed any stigma about attracting investors just because a project is 
nuclear. Recent sale prices of operating plants attest to this fact. It 
is on this basis that new nuclear plants must compete against natural 
gas and coal plants. Therefore, in preparing for the marketplace, it is 
critical that we focus on activities that will reduce costs and 
uncertainty.
    As one would expect, the fundamental economic requirement for new 
coal and nuclear plants is that they must be able to generate 
electricity with a total generation cost that competes with natural gas 
plants. Total generating costs include the capital charges (i.e., the 
mortgage payments) for building a new plant--along with the production 
costs (i.e., fuel plus operating & maintenance expenses). The capital 
cost of building a coal or nuclear plant is at least twice the cost of 
building a comparably sized natural gas plant; however, the fuel costs 
are dramatically lower. To compound matters, investors want the capital 
costs on a new plant (be it gas, coal, or nuclear) to be paid off 
within twenty years or less--as opposed to the thirty year mortgages 
that regulated utilities were able to use in the past. This creates 
even more pressure to hold down capital costs.
    The overnight capital cost (i.e., without including interest 
charges or inflation during the construction period) of building a new 
coal plant in the U.S. is estimated to be around $1,000/kilowatt. Since 
new nuclear plants are expected to have production costs (fuel plus 
O&M) slightly below coal plants, this means that the overnight capital 
costs for nuclear units must also be around $1,000/kwe to be 
competitive. This would place the total generating costs of coal and 
nuclear plants in the range of 3 to 4 cents/kilowatt-hour--which is 
where natural gas generated electricity was, until the sudden run-up in 
natural gas prices last year. Today, gas plants are generally producing 
electricity at more than 5 cents/kilowatt-hour (although this varies by 
region of the country).
    Compared to the gas and coal burning plants, new nuclear plants 
face a significant hurdle that is unique to nuclear--NRC licensing. If 
an unregulated power generation company wants to bid to supply 
electricity to a regulated utility (in a power purchase agreement), the 
generation company can obtain the necessary permits for a coal or gas 
plant prior to submitting its bid--with relatively little investment of 
time and expense. On the other hand, obtaining the permits for a 
nuclear plant is substantially more expensive and time consuming. Since 
the generation company may not know whether it will actually construct 
the plant until it has won the power purchase agreement, incurring 
these costs beforehand is a significant risk.
    Despite the dramatic improvements at NRC, there is still 
significant cost and uncertainty associated with the licensing of new 
plants. In 1989, the Commission implemented a new regulation (10CFR52) 
to streamline the licensing process. It provided for approval of (1) 
standardized designs via Design Certification, (2) individual plant 
sites via Early Site Permits, and (3) construction and operation of 
individual plants via Combined Operating Licenses. During the 1990s, 
the Commission issued three Design Certifications; however, the Early 
Site Permit and Combined Operating License processes still remain 
untested.
What Westinghouse, Industry, and DOE Are Doing to Prepare for New 
        Plants
    One of the three standardized designs certified by NRC is our AP600 
design. Rated at 610 Megawatts, it is the only Light Water Reactor 
design that is based on the use of passive safety systems to improve 
safety, simplify the plant, and reduce costs. It is ready for the 
marketplace today and, in fact, has been submitted for consideration in 
potential overseas projects. The estimated overnight costs for 
constructing AP600 units is on the order of $1,400/kwe, which is 
slightly lower than for the other two standardized designs that are 
already certified by NRC. It should be noted, however, that there would 
be significant first-time startup costs in building the first units--
which would have to be included in the price of those units or spread 
out over a number of the follow-on units. From the previous discussion, 
we can see that the AP600 design would be expected to be competitive in 
the U.S. market, if electricity prices remain at their current levels 
of 5 cents/kw-hr or higher. If, on the other hand, electricity prices 
should decline back to the 1999 levels, a lower cost alternative will 
likely be needed.
    To address this need, Westinghouse began developing changes to the 
AP600 design in 1999--to uprate its power level from 610 Megawatts to 
1090 Megawatts. We found that we could increase the size of the reactor 
core and vessel, the steam generators, the reactor coolant pumps, the 
containment height, and the turbine-generator--without increasing the 
footprint of the plant. Therefore, changes to the plant design are 
minimal. The larger components are the same size as those used in some 
of the operating Westinghouse plants; thus, assuring that design detail 
and proven features are maintained. The overall impact is an increase 
in power rating of about 75%, with an increase in capital cost that is 
only about 13%. The revised design, dubbed AP1000, would have a capital 
cost below $1,000/kwe--which would make it very competitive against 
natural gas and coal plants, even if electricity prices drop back down 
to 1999 levels.
    We are currently in a pre-application phase with the NRC and are 
providing the Staff with information on the nature of the changes to 
the design and the safety analyses. By the end of this year, we hope to 
reach agreement on the scope, schedule, and budget for the NRC's review 
and approval of a complete application for Design Certification of the 
AP1000 design changes. We would then expect to submit the complete 
application early in 2002. Although the NRC has not issued its schedule 
estimate, we believe that issuance of the Certification by the end of 
2004 should be a reasonable target.
    In addition to our effort to develop and license the AP1000 design 
changes, we are also becoming involved in the development and licensing 
of the Pebble Bed Modular Reactor--a 110 Megawatt gas-cooled reactor. 
Building off of the demonstration project being pursued in South 
Africa, the PBMR offers an incredible opportunity to bring forth an 
economical nuclear plant design, at a much lower power level. Since the 
PBMR has already been discussed with this Committee by Exelon, I will 
not go into the details of it here--other than to reiterate the point 
that licensing of the PBMR will necessitate the development of new NRC 
requirements and review processes.
    For completeness, I should also mention that Westinghouse is also 
working on a longer-term Light Water Reactor design, called IRIS, under 
a grant from DOE. IRIS is an integral reactor that could range in size 
from 100 to 300 Megawatts and includes a number of inherent safety 
features that go beyond what we have done in other passive designs. It 
might be thought of as a Light Water Reactor counterpart to the PBMR--
except that it is not as far along in the development process.
    Meanwhile, the nuclear industry, as a group, has begun paving the 
way for new nuclear plants by establishing the Nuclear Energy Institute 
Executive Task Force on New Plants. The Task Force includes 
representatives from power companies, architect-engineers, reactor 
suppliers, EPRI, and INPO. It is providing management and oversight of 
the many new-plant activities being carried out by industry--in 
coordination with NRC and DOE. For example, there is an NEI group that 
is looking at how the Early Site Permit process in 10CFR52 would be 
implemented. Another group is looking at changes to 10CFR52 itself that 
would benefit new plant licensing.
    Since 1999, DOE's Nuclear Energy Research Initiative has included a 
number of small research projects to assist in the efforts to prepare 
for new plants. This year, however, DOE has launched an initiative to 
prepare a technology roadmap for guiding nuclear R&D activities that 
will lead to what it calls Generation IV reactors. Working groups 
(comprised of representatives from industry, laboratories, and 
academia) are carrying out this initiative under the guidance of the 
Nuclear Energy Research Advisory Committee (NERAC). I am a participant 
in one of the working groups. It is called the Near Term Deployment 
Group.
    The Near Term Deployment Group is co-chaired by Lou Long (Southern 
Nuclear Operating Company) and Tony McConnell (Duke Engineering & 
Services, Inc.). The task of this group is to identify nuclear plant 
designs that could be commercially put into operation in the U.S. by 
2010, and, then, identify the technological and institutional gaps that 
must be addressed for them to do so. The final product of this group, 
to be completed in September of this year, will be a comprehensive 
report that summarizes the designs and actions needed--including 
identification of what is needed from DOE and NRC.
    Although 2010 may seem like a long time from now, our group quickly 
realized that some activities require action right away. As one might 
guess, these activities relate almost entirely to regulatory issues--in 
particular, the need to support ongoing interactions between NRC and 
industry, related to implementation of 10CFR52: Early Site Permits, 
Combined Operating Licenses, Design Certifications, and introduction of 
new advanced reactor technologies, e.g., the PBMR. To have a new plant 
operating by 2010, all of these NRC licensing activities need to be 
completed by 2006 or sooner. Therefore, at the end of May, our group 
issued an interim report that identifies activities needing immediate 
attention, which should be included in fiscal year 2002 and 2003 budget 
planning. Specifically, the group recommends that $36 million be 
included in DOE's budget for fiscal year 2002. The funding would be 
used to provide cost-share and reimbursement of NRC fees and research 
on these new plant activities. (In fact, 30 to 50% of this funding 
would ultimately be paid to NRC.) This funding would encourage 
companies to step forward and enter into the Early Site Permit, 
Combined Operating License, and Design Certification processes on an 
early enough schedule that the U.S. could witness operation of new 
plants by 2010.
Suggestions for Government Actions to Support Expansion of Nuclear 
        Energy
    Consistent with the recommendations of the Vice-President's 
National Energy Policy Development Group, we believe that there a 
number of actions that Congress and the Administration can take to 
provide an environment conducive to the expansion of nuclear energy in 
a way that allows nuclear energy to be economically competitive in the 
deregulated marketplace, while assuring that public safety and 
environmental protection are not compromised in any way. We do not ask 
for any special favors for nuclear energy. Nuclear plants must be able 
to compete in the marketplace on their own. However, we would like to 
see a level playing field with the other generating options of coal, 
gas, and renewables--in terms of regulation, incentives, and research 
support. More importantly, the industry and its investors must feel 
confident that nuclear energy has the government's support, if we are 
to invest the many billions of dollars that would go into the next 
generation of nuclear plants.
    Price-Anderson must be renewed. It has served the industry and the 
American people very well, for over forty years. Failure to renew it 
would be sure to keep the industry and the investment community from 
involvement in financing new nuclear plants.
    Progress on the disposal of high level wastes must be demonstrated. 
We don't necessarily need to start burying waste yet, but we do need to 
know that there is an unambiguous path forward that will lead to final 
resolution. Otherwise, public support for the nuclear option could 
begin to erode. In addition, the industry and investors would have to 
allow for substantial financial risks in the uncertainty of the 
outcome, when estimating the costs of new plants.
    The interim recommendations of DOE's Near Term Deployment Group to 
provide $36 million in fiscal year 2002 should be implemented, so that 
NRC licensing issues do not delay the possibility of starting up new 
nuclear plants by 2010. The activities described in the group's interim 
report will play a crucial role in developing and demonstrating the new 
streamlined licensing process for future plants. When the group's final 
report is issued in September, its recommendations for future years 
should be incorporated into government planning and budgets.
    Complementary to the recommendation of the Near Term Deployment 
Group, it is also important to assure that NRC receives the support 
that it needs from Congress and the Administration, to assure that it 
has adequate resources necessary to carry out the licensing of a new 
generation of nuclear plants.
    Congress and the Administration should consider options for 
encouraging the first wave of nuclear plant orders in the U.S. Since no 
new plants have been ordered in the U.S. in over twenty years, the 
first-time startup costs and financial risks will be significant 
hurdles for the first wave of plants that are ordered. Incentives for 
that first group of orders--e.g., accelerated depreciation for tax 
purposes, loan guarantees, deferral of licensing fees, etc.--could help 
to encourage the first buyers to take action. Making available 
financial credits for the deployment of new nuclear plants, based on 
the clean air and greenhouse gas benefits of nuclear energy, should be 
strongly considered.
Conclusion
    The potential for rebirth of the nuclear option in the U.S. is a 
reality. Nuclear plants can be expected to be economically competitive 
with the coal and gas options. However, government support for the 
nuclear option will play an important role in overcoming some of the 
up-front financial and regulatory risks. We strongly encourage Congress 
and the Administration to take the actions suggested above.

    Mr. Largent. Thank you, Mr. Davis.
    And now we recognize Mr. Laurence Parme from General 
Atomics. You have 5 minutes.

                 STATEMENT OF LAURENCE L. PARME

    Mr. Parme. Mr. Chairman, members of the subcommittee, I 
want to thank you for this chance to talk to you about some of 
the legislative initiatives or reforms that we think would 
facilitate licensing of a next generation of nuclear power.
    As you may be aware, General Atomics is the leading 
developer and proponent of High-Temperature Gas-Cooled 
Reactors. We have been at the forefront of research on this 
technology for over 40 years. The Gas Turbine Modular Helium 
Reactor is a next generation of Generation IV reactor 
technology and builds on this experience. The GT-MHR couples a 
gas turbine directly to a modular reactor, not all together 
different than the Pebble Bed plant. It is characterized by 
meltdown-proof safety, much improved economics, substantially 
reduced production of wastes, both nuclear and thermal, and 
very good proliferation resistance.
    Now, while this technology was first conceived of in the 
U.S. in the early nineties, the development is now proceeding 
in Russia as part of an international program aimed at the 
destruction of surplus weapons grade plutonium. This is being 
done under a joint U.S.-Russian cost-sharing arrangement, with 
contributions also being made by Japan and France.
    If you take out the plutonium core and put in a U.S.-
designed, low-enriched uranium core, this plant makes a very 
promising and competitive commercial plant. General Atomics, 
along with interested utilities, are currently working to 
commercialize the technology and bring it to the U.S. market. I 
believe attached to my written testimony you will see a letter 
to Chairman Barton from Entergy representing our Utility 
Advisory Group on their participation in the program.
    Now, among the major challenges facing this effort, 
licensing and regulatory issues are some of the large ones. 
There is really three areas of hurdles or where we see that the 
Congress and others can help us get through. First of all, the 
NRC. Now, it has been discussed today questions of the NRC 
staff and do they have the staffing to support licensing of new 
plants. And I won't go into that further, but beyond that, 
there are two items. There is, not surprisingly, the NRC's 
experience is with licensing light water reactor plants. And 
this leads us in two places. First of all, many of their review 
criteria are based on water reactors, and these are not always 
appropriate for gas-cooled reactors. In addition, it is our 
view that their expertise in looking at gas-cooled reactors is 
limited.
    A second area that General Atomics is interested in is 
bringing back technology from overseas. While we understand and 
have every anticipation that a reactor built in the U.S. will 
be built to U.S. codes and standards, there are a number of 
unknowns and may also bring back analysis and take credit for 
component testing and full prototyping that will be done 
overseas.
    Finally, there are several regulations that are either 
outdated or need to be modified or adapted for advanced 
reactors in general, but the gas-cooled reactors in particular. 
Mention a few of these that can be a burden: anti-trust review 
requirements, 10 CFR 50 Part 33. One of the things General 
Atomics is concerned about is the ban on foreign ownership of 
U.S. nuclear power plants. In today's world where the industry 
is consolidating and international cooperation is becoming more 
common, this becomes more of a problem. Many of the industrial 
partnerships we have looked at for bringing a first plant into 
the U.S. would involve foreign partners.
    The large emergency planning zone requirements, also in 10 
CFR Part 50. When these were originally developed and 
specified, the thought was on large water-cooled reactors. I 
think there is a good deal of evidence that the definition of 
how large these emergency planning zones need to be may not be 
appropriate to a gas-cooled reactor, especially a modular 
reactor.
    Finally, the per reactor basis for both annual fees, 
licensing fees for reactors and the per reactor basis for 
Price-Anderson. Price-Anderson we would like to see renewed, 
but the way these laws just blindly go on a per reactor basis 
without consideration for the megawatt rating of the reactor 
can be detrimental to small modular reactors. So we believe 
that it is important for increased use of nuclear energy in 
this country, to also think about advanced reactors, the 
introduction of these new reactors will, however, require a 
fresh look in a number of areas in regulation and licensing. 
Thank you.
    [The prepared statement of Laurence L. Parme follows:]
Prepared Statement of Laurence L. Parme, Manager: Safety and Licensing, 
                            General Atomics
    Mr. Chairman and Members of the Subcommittee, my name is Larry 
Parme and I am the Manager of Nuclear Safety and Licensing for General 
Atomics. I appreciate the opportunity to speak before you today to 
present the views of General Atomics on legislative and other reforms 
necessary to facilitate the licensing of next generation nuclear power
    As you may be aware, General Atomics is a leading developer and 
proponent of High Temperature Gas-Cooled Reactors and has been at the 
forefront of research on these technologies for over 40 years.
    Today we and interested utilities are looking to bring to the U.S. 
market the Gas Turbine-Modular Helium Reactor (GT-MHR). (Attached to my 
testimony is a copy of a letter from the Chairman of our Utility 
Advisory Board to this Subcommittee). We believe this technology offers 
the promise of several desirable features including enhanced safety, a 
favorable environmental impact, and competitive economics. We have 
initiated pre-application discussions with the NRC to facilitate an 
anticipated application in the future. In addition, recognizing certain 
similarities in the technologies, we have been collaborating on generic 
issues with the Pebble Bed Modular Reactor (PBMR) project.
Background and Overview of Design
    U.S. and European technologies provide the basis for the Gas 
Turbine-Modular Helium Reactor (GT-MHR). For more than 4 decades, High 
Temperature Gas-cooled Reactors (HTGRs) have been under development in 
several countries. Numerous prototypes and demonstration plants have 
been constructed and operated including Peach Bottom 1 and the Fort St. 
Vrain Nuclear Generating Station in the United States. At the time of 
these initial plants, the vision was one of scaling up the technology 
to large, steam cycle plants comparable to modern Light Water Reactors, 
thus benefiting from economy of scale.
    However, in the early 1980s, both in the U.S. and abroad a shift in 
paradigm occurred and it was recognized that safety and modularization 
should be the primary drivers of our future nuclear plant design. 
Several features of the HTGR, particularly the unique coated particle 
fuel, lend themselves to the design of smaller, modular plants with 
significant simplification and safety advantages. Furthermore, this 
simplification when coupled with shortened construction schedules, and 
incremental capacity additions, promised improved economics. Hence, the 
Modular High Temperature Gas-Cooled Reactor (MHTGR) was the DOE 
sponsored, General Atomics developed, U.S. modular plant design 
submitted for pre-application review by NRC in the latter half of the 
1980s. The GT-MHR represents a further refinement on this concept. 
Taking advantage of the high temperature capability of the gas-cooled 
reactor and an evolving technology base, the GT-MHR replaces the steam 
cycle with a closed loop gas turbine (Brayton) cycle. With the gas 
turbine, a net plant efficiency of nearly 50% (which is approximately 
50% more efficient than existing reactors) can be realized, further 
improving the concept's economics.
    The 285 MW (electric) GT-MHR is now being developed under a joint 
U.S./Russian Federation agreement aimed at the destruction of surplus 
weapons plutonium. In addition to the U.S. and Russia, Japan and France 
also sponsor the program. Conceptual design of this International GT-
MHR program is completed and preliminary design is on schedule for 
completion in early CY 2002. Construction of the first module is 
currently scheduled to begin in 2006 with startup in 2009 and a 4-
module plant to follow.
    Commercialization in the U.S. involves the importation of the 
International design with a U.S. engineering effort to adopt the design 
for the U.S. and world markets. These would include ensuring compliance 
with U.S. codes and standards, a low enriched uranium core, and a 60-
Hertz generator. I should point out that the development work on the 
International program is proceeding with this adaptation in mind. 
Finally, a licensing submittal would be prepared in the U.S. and 
submitted to NRC. The first U.S. module could be operating 
approximately 1 year after the first International module.
Challenges to Deployment
    While the technical challenges facing the design teams now working 
to complete preliminary design are considerable, surmounting several 
legal and institutional hurdles will be at least as important if the 
GT-MHR is to play a part in the future U.S. energy mix. These hurdles 
may be summarized as falling into three general categories. These are;

1. Institutional inexperience with gas-cooled reactors and a 
        predisposition to view them as variants of the more familiar 
        (in the U.S.) water-cooled reactors.
2. Returning the GT-MHR technology to the U.S., and
3. Regulations enacted without a deregulated market or smaller, modular 
        reactors foreseen.
    Institutional inexperience: Just as the GT-MHR represents a shift 
in several of the paradigms in reactor design, its licensing requires a 
certain amount of fresh thinking. While on the surface 10CFR Part 50 
and especially the combined license and certification offered by Part 
52 are adequate to license advanced reactors, a substantial portion of 
the review criteria developed by the NRC to implement these regulations 
is based on experience with large, Light Water Reactor (LWR) plants.
    Consequently, the GT-MHR licensing plan builds on General Atomics' 
experience of the mid-80s at which time we submitted for NRC review 
another gas-cooled modular reactor, the steam cycle MHTGR. Because of 
the unique design approach, especially with regards to safety, the 
licensing approach we proposed returns to the fundamental safety 
requirements of allowable dose and risk to the public. It was then used 
to derive risk-informed licensing bases similar to those in use by the 
NRC but appropriate to a gas-cooled modular reactor and directed at 
assuring compliance with these ``top-level'' safety requirements.
    This type of review is required to realize the benefits of a 
simplified safety approach and to ensure that the licensing process 
addresses questions unique to gas-cooled reactor safety.
    At this point I should add that the Pebble Bed Modular Reactor 
(PBMR) project, as it is being pursued in the U.S. by Exelon 
Generation, is also using the 1980s MHTGR licensing approach as the 
starting point for their interactions with NRC. We are currently 
cooperating with Exelon in establishing a licensing approach capable of 
effectively dealing with both of our concepts. We feel that this is not 
only in the best interests of both programs but that such cooperation 
will ultimately work to the taxpayers and ratepayers advantage.
    Finally, the question has been previously raised before the 
Congress as to whether the NRC has the staff to handle on-going 
regulation of existing power plants, expected license renewals, plus 
applications for new plants. In addition to this, the technical 
expertise to adequately review the GT-MHR, or other gas-cooled reactor, 
in the NRC or in the national laboratories supporting the agency is 
limited.
    Returning GT-MHR technology to the U.S.: I have previously alluded 
to the fact that while the GT-MHR was first conceptualized in the U.S., 
it is currently under development as part of an International program. 
Specifically, much of the engineering and developmental testing is 
being performed in the Russian Federation with significant technology 
transfer and review being made by Japan, France, and the U.S. as part 
of the program for dispositioning of surplus, weapons grade plutonium. 
To efficiently commercialize the GT-MHR in the U.S. we are attempting 
to gain maximum leverage from this International effort in a manner not 
altogether dissimilar from the development of the PBMR in South Africa.
    Within the International program, every effort is being made to 
ensure that the GT-MHR will be marketable in the U.S. and elsewhere. We 
understand that components will need to be manufactured to U.S. 
consensus code and standards. Nonetheless, the path and degree to which 
foreign performed testing programs and analyses are usable in the U.S. 
remains somewhat uncertain.
    Outdated Regulations: Several regulations that impact the owners 
and operators of plants could act as significant impediments. 
Specifically, the economic competitiveness and hence the ability to 
deploy a smaller, modular design would benefit from updating 
legislation enacted at a time when the assumptions about nuclear power 
and utilities operating them was different from today's realities. 
Regulations that we feel should be revisited and revised are;

 The antitrust review requirements of 10CFR Part 50.33a,
 The ban on foreign ownership of U.S. nuclear plants of 10CFR 
        50.38,
 The large emergency planning zone requirements in 10CFR Part 
        50.54, and
 The annual fees on a per reactor basis of 10CFR Part 171.
    The NRC antitrust review requirements of 10CFR Part 50.33a is based 
on the assumption of regulated monopolies, electric utilities, owning 
and operating nuclear power plants. However, antitrust review of a 
competing commercial plant is an added cost to the user with little or 
no benefit apparent to consumers. Furthermore, the review is redundant 
with the reviews performed by other agencies.
    The ban on foreign ownership of U.S. nuclear plants (10CFR 50.38) 
should be considered for elimination. Many of the power generation 
entities that could be either potential customers or part of a 
consortium to build the first U.S. modules have foreign participants. 
With the continuing consolidation of the industry the ban on foreign 
ownership is likely to become increasingly burdensome to new nuclear 
generation. The NRC has the authority to deny a license that would be 
inimical to the common defense and security of the U.S., and thus the 
blanket ban on foreign ownership is unnecessary.
    The large emergency planning zone requirements in 10CFR Part 50.54 
were developed based on an understanding of ``worst case'' accidents in 
large water reactors being placed in service at the time. However, the 
GT-MHR, from its inception, was designed to limit radiological releases 
during accident to very much lower levels. Furthermore, the time frame 
over which an accident would progress in these modular designs is 
fundamentally different. Rather than the potential for core damage in 
minutes, worse case accidents in the modular reactors progress over 
days. Consequently, the typical 10 mile Emergency Planning Zone in 
which preparations are in place for rapid off site actions in a large 
area surrounding the plant does not appear required nor appropriate for 
the modular gas reactors.
    The annual fees specified in 10CFR Part 171 are currently assessed 
equally on all reactors. Such a fee structure is punitive on smaller 
sized reactors since for a given level of electric power production, 
more reactors are involved. With an output of approximately 285 
Megawatts, 3 or more GT-MHR modules would be required to equal the 
output of a large Light Water Reactor. Under the current fee 
arrangement, 3 or more times the annual fee would be assessed an 
operator of the GT-MHRs. For operators of still smaller modules, the 
fee would become an even greater burden.
Summary
    In summary, the GT-MHR offers an environmentally benign source of 
electric power that could be part of the answer to U.S. energy needs. 
It is rooted in decades of international HTGR technology development 
and builds on the mid-1980s MHTGR experience. The design features 
optimization of characteristics inherent to high temperature gas-cooled 
reactors to achieve high thermal efficiency, and easily understood, 
assured safety.
    To realize the benefits of this technology, though, legal and 
institutional disincentives stemming from 1970's assumptions of what 
nuclear power plants looked like and the environment in which they 
would operate need to be reviewed and revised.
                                appendix
Description of the GT-MHR
    The GT-MHR design is centered around a 600 Megawatt graphite core 
comprised of 1020 fuel blocks essentially identical to those 
successfully used in the Fort St Vrain reactor in the 1970s and 80s. 
The system is contained in a 3 vessel, side-by-side arrangement. The 
reactor is located in one vessel, while a compact arrangement of the 
entire gas turbine based power conversion system, including the 
generator is located in a second parallel vessel. A small horizontal 
vessel provides coaxial ducting of gas between the reactor and power 
conversion system. The entire nuclear unit is located in a below grade 
silo with service areas above. The silo provides containment and 
protection of the reactor but is not designed to hold pressure. 
Naturally circulating water or air in panels around the reactor vessel 
carry off heat radiated from the uninsulated vessel and provides 
entirely passive reactor cooling.
    Ceramic-coated fuel is the key to the GT-MHR's safety and 
economics. A kernel of Uranium oxycarbide (or UO2) is placed in a porus 
carbon buffer and then encapsulated in multiple layers of pyrolytic 
carbon and silicon carbide. These micro pressure vessels withstand 
internal pressures of up to 2,000 psi and temperatures of nearly 2,000 
o C providing extremely resilient containment of fission products under 
both normal operating and accident conditions. The fuel particles are 
blended in carbon pitch, forming fuel rods, and then loaded into holes 
within large graphite fuel elements. Fuel elements are stacked to form 
the core.
    Modular gas reactors and the GT-MHR represent a fundamental shift 
in reactor design and safety philosophy. Up through approximately 1980, 
HTGR development proceeded on a path of scaling up core size in the 
interests of economics. In the process of this scale-up, overall core 
power density was kept nearly constant while its surface to volume 
ratio decreased. At the time, this was believed necessary to achieve 
low capital cost. As a consequence of this thinking, the maximum 
predicted accident temperatures of these large cores increased well 
above the temperature capabilities of the fuel particles. This placed 
ever increasing reliance on engineered safety features to assure 
continued core cooling and to contain released fission products should 
this cooling be lost. The modular reactor represents a 180-degree turn 
around in design philosophy. From its inception, the modular design 
first addresses safety, sacrificing size and optimized nuclear geometry 
to ensure that regardless of cooling system operation or coolant 
boundary integrity, fuel temperatures will never exceed the point at 
which fission products would be released. Having first addressed safety 
with the inherent features available in the gas-cooled reactor, good 
economics are sought in the efficient Brayton cycle and plant 
simplification.
    Fuel particle testing in Japan, Germany, and U.S. has repeatedly 
demonstrated the high temperature resilience of coated particle fuel to 
temperatures approaching 2,000 deg.C. As a conservative design goal, 
GT-MHR has been sized to keep maximum fuel temperatures below 
1,600 deg.C during the limiting accident condition of lost coolant 
circulation, pressure, and all AC power. Like other reactor types, the 
GT-MHR has a negative temperature coefficient (i.e., the hotter the 
reactor becomes, the less able it is to support a fission chain 
reaction). But unique to reactors with an all refractory, high 
temperature core, there is several hundred degrees of temperature 
margin in the core design to make full use of this feedback mechanism.

    Mr. Largent. Great. Thank you for your testimony.
    Now, we recognize Dr. Allen Womack, president of BWX 
Technology, on behalf of the Energy Contractors Price Anderson 
Group, and you have 5 minutes to summarize your testimony.

                  STATEMENT OF E. ALLEN WOMACK

    Mr. Womack. Thank you, Mr. Chairman. The Energy Contractors 
Group is an ad hoc organization made up of BWX Technologies, 
Battelle Memorial Institute, BNFL, Incorporated, Fluor 
Corporation, Johnson Controls, Nuclear Fuel Services and 
Washington Group International and USEC, Incorporated. This 
represents a significant cross-section of DOE contractors.
    Each of these entities is covered by one or more nuclear 
hazard indemnity agreements with the U.S. Department of Energy 
under section 170(d) of the Price-Anderson Act. Collectively, 
we are here today to advocate an extension of the Price-
Anderson Act. We support another extension sooner rather than 
later to ensure there is no break in this vital authority next 
year.
    The protection of the public has been the principal purpose 
of the Price-Anderson Act since its adoption. Failure to extend 
the act would result in substantially less protection for the 
public in the event of a nuclear incident at a DOE site or in 
transporting materials from a DOE site. Absent Price-Anderson 
coverage, the Department of Energy would greatly be inhibited 
in attracting and hiring the kinds of contractors needed to 
tackle some of the tough work that lies before them. Without 
Price-Anderson protection, most private contractors and 
suppliers could not prudently take the financial risks 
associated with assisting DOE to perform its vital cleanup, 
national defense and other missions. Price-Anderson 
indemnification is simply the only viable substitute for the 
commercial insurance that prudent contractors doing work for 
the Federal Government would purchase, if they could, to 
protect themselves.
    In 1999, the Department of Energy submitted a report to the 
Congress calling for a renewal of Price-Anderson, and we 
support that recommendation. Attached to their 1999 report to 
Congress was a letter from American Nuclear Insurers indicating 
that commercial insurers are not in a position to guarantee 
that any nuclear liability insurance would be written for DOE 
facilities. It further stated that even if it were, it could 
not replace the $9.4 billion of indemnity granted under the 
Price-Anderson Act, since ANI has been limited in their ability 
to write coverage beyond $200 million.
    There would be a strong reluctance on the part of existing 
and potential contractors to do nuclear business with the 
Department if the authority to enter into Price-Anderson 
indemnity agreements were discontinued. The strong reluctance, 
if not inability, to do business would apply especially to 
contractors whose nuclear activities are a small percentage of 
their overall business. This would lessen competition and 
otherwise increase costs to the Government. the strong 
resistance would also extend to subcontractors and equipment 
suppliers, including many small businesses throughout the 
country who might be held liable for an accident but not have 
the financial resources to cover that liability or the legal 
defense costs associated with such litigation.
    With regard to safety, Price-Anderson indemnification 
provides an incentive for safety. Not only are there existing 
criminal laws to punish egregious behavior, in the 1988 
amendments to Price-Anderson, Congress added enhanced criminal 
and civil penalty provisions to further encourage DOE 
contractor accountability. These provisions are now being 
rigorously enforced. In addition, DOE can and does hold 
contractors accountable by other actions, such as performance 
fee reductions, stop work orders, contract modification and 
contract revocation.
    Reducing the number of potential contractors and suppliers 
to DOE would obviously have an adverse impact on the 
Department's costs and schedules. Of even greater concern would 
be the potential adverse impact on the overall quality and 
safety levels of DOE contract work, since the most qualified 
and most safety-conscious contractors and suppliers would 
probably be the first to abandon DOE work because of inadequate 
liability protection.
    In conclusion, the Price-Anderson indemnity system should 
be continued in substantially its present form. After nearly 45 
years of Price-Anderson Act indemnification, private industry 
has assumed, as Congress intended, a larger role in assisting 
the Federal Government in carrying its own nuclear activities 
safely and efficiently. In other words, Price-Anderson 
contractor indemnification is a system that has worked well in 
encouraging this private industry participation, and it should 
be promptly extended again.
    Thank you for the opportunity to testify. I will be happy 
to answer questions.
    [The prepared statement of E. Allen Womack follows:]
  Prepared Statement of E. Allen Womack, President, BWX Technologies, 
       Inc. on Behalf of Energy Contractors Price-Anderson Group
    Mr. Chairman and Members of the Subcommittee, my name is Allen 
Womack and I am President of BWX Technologies, Inc. I am here this 
morning representing fellow Department of Energy contractors through 
the Energy Contractors Price-Anderson Group.1 I am 
accompanied by Omer F. Brown of Harmon, Wilmot & Brown, L.L.P., counsel 
to the Group. We appreciate this opportunity to testify before your 
Subcommittee and for the fact that you have scheduled this hearing 
about extension of the Price-Anderson Act (``Price-Anderson'').
---------------------------------------------------------------------------
    \1\ The Energy Contractors Price-Anderson Group is an ad hoc group 
composed of Battelle Memorial Institute; BNFL, Inc.; BWX Technologies, 
Inc.; Fluor Corporation; Johnson Controls World Services Corporation; 
Nuclear Fuel Services, Inc.; Washington Group International Inc.; and, 
USEC Inc. Each of these entities now is covered by one or more nuclear 
hazards indemnity agreements with the U.S. Department of Energy (DOE) 
under Section 170d of the Price-Anderson Act.
---------------------------------------------------------------------------
    Price-Anderson Act authority of the Department of Energy provides 
indemnity protection for nuclear risks associated with DOE contracts 
and is to expire on August 1, 2002. We are here today to ask for its 
renewal. We support extension, sooner rather than later, to ensure 
there is not a break in this vital authority next year.
    Protection of the public has been the principal purpose of Price-
Anderson. Failure to extend Price-Anderson would result in 
substantially less protection for the public in the event of a nuclear 
incident at a DOE site or in transportation. Moreover it would greatly 
inhibit the Department of Energy in attracting and hiring the kinds of 
contractors needed to tackle some of the tough work that lies before 
them.
    For almost 45 years, through Price-Anderson, the Congress has been 
able to ensure the availability of adequate funds to the public (now 
about $9.4 billion) in the unlikely event of a catastrophic nuclear 
accident. In addition, other benefits to the public include such 
provisions as emergency assistance payments, consolidation and 
prioritization of claims in one court, channeling of liability 
permitting a more unified and efficient approach to processing and 
settlement of claims, and waivers of certain legal defenses in the 
event of a large accident (``extraordinary nuclear occurrence'').
    The 1988 Price-Anderson Amendments Act required DOE and the Nuclear 
Regulatory Commission (NRC) to submit to Congress reports containing 
their recommendations for continuation, repeal or modification of the 
Price-Anderson Act. The DOE Report was submitted to Congress in March 
1999 recommending an extension. NRC's Report, which also strongly 
recommended an extension (with relatively minor changes), was filed in 
October 1998.
    The 1999 DOE Price-Anderson Report makes five basic 
recommendations, which we support:

(1) DOE indemnification of its contractors for nuclear risks should be 
        continued without substantial change, because it is ``essential 
        to DOE's ability to fulfill its statutory mission.'' The Report 
        further makes the point that DOE indemnification guarantees the 
        availability of funds to ensure prompt and equitable 
        compensation for the public, provides for consolidating claims 
        in one federal court, and minimizes protracted litigation. DOE 
        goes on to state that Price-Anderson indemnification is cost-
        effective, pointing out that DOE payments to date ``have not 
        been significant.''
(2) The amount of DOE indemnification (about $9.4 billion) should not 
        be decreased.
(3) DOE indemnification should continue to provide broad and mandatory 
        coverage of activities conducted under contract for DOE.
(4) DOE should continue to have authority to impose civil penalties on 
        for-profit contractors, subcontractors and suppliers for 
        nuclear-safety violations.
(5) The 1997 International Atomic Energy Agency Convention on 
        Supplementary Compensation for Nuclear Damage (CSC) should be 
        ratified, and conforming amendments to the Price-Anderson Act 
        should be adopted. (Technically, U.S. ratification of the CSC 
        would have little impact on the portions of the Price-Anderson 
        Act applicable to indemnification of DOE contractors. The CSC 
        is of more relevance to commercial nuclear activities, which 
        would enjoy substantial benefits from its ratification by the 
        United States and other countries. For example, the CSC would 
        provide a portion of the funds for a power plant accident in 
        the United States through international contributions.)
    This year, we have seen several comprehensive energy bills 
containing nearly identical Price-Anderson extension provisions 
introduced in the House of Representatives (H.R. 1679) and the Senate 
(S.388, S.472, and S.597). These are based on last year's bipartisan 
Senate bill, S.2162 (106th Congress), introduced by Senator Frank 
Murkowski (R-Alaska) and Senator Jeff Bingaman (D-New Mexico). We 
support extension of the DOE contractor provisions of these bills whose 
simplicity, similarity and bipartisan nature reflect a consensus on a 
simple extension of Price-Anderson. We further note that the 
President's National Energy Policy Report also supports extension of 
the Price Anderson Act.
    Without Price-Anderson protection, most private contractors and 
suppliers could not prudently take the financial risks associated with 
assisting DOE to perform its vital cleanup, national defense, and other 
missions. Price-Anderson indemnification is not a ``subsidy'' to DOE 
contractors and suppliers. It simply is the only viable substitute for 
the commercial insurance that prudent contractors doing work for the 
Federal Government would purchase, if they could, to protect 
themselves, and the public.
    Attached to the 1999 DOE Report to Congress is a letter from 
American Nuclear Insurers (ANI) indicating that commercial insurers are 
not in a position to guarantee that any nuclear liability insurance 
would be written for DOE facilities. It further states that even if it 
were, it could not replace the $9.4 billion of indemnity granted under 
the Price-Anderson Act, since ANI has been limited to nuclear liability 
limits of only $200 million.
    In any case, ANI observed that it would be much easier for it to 
write nuclear liability insurance for new DOE facilities than for 
existing ones. The insurers said, for facilities which have, in some 
cases, operated for decades, ANI ``would have obvious concerns about 
picking up liability for old exposures, which may well preclude 
insurability.'' Even if some limited private insurance were available 
for some DOE nuclear activities, it would not protect against all 
nuclear hazards, and would increase Government costs substantially, as 
the DOE Report to Congress observes. Few nuclear claims have ever been 
paid by the Government, so DOE has concluded it is cost-effective for 
the Government to continue to self-insure the nuclear risks associated 
with its own activities.
    With regard to safety, Price-Anderson indemnification does not 
provide a disincentive to safety any more than the purchase of 
liability insurance by an individual or a corporation provides a 
disincentive to safety. There are existing criminal laws to punish 
egregious behavior. Furthermore, in the 1988 Amendments, Congress added 
enhanced criminal and civil penalty provisions to further encourage DOE 
``contractor accountability.'' These provisions, which now are being 
rigorously enforced, were added to enable DOE to impose civil fines of 
up to $110,000 per day and increased criminal penalties for violations 
of DOE nuclear safety rules. DOE also can hold contractors accountable 
by other actions, such as award-fee reductions, stop-work orders, 
contract modification, and contract revocation.
    There would be strong reluctance on the part of existing and 
potential contractors to do nuclear business with the Department if 
authority to enter into Price-Anderson indemnity agreements were 
discontinued. The strong reluctance, if not refusal to do business, 
would apply especially to contractors whose nuclear activities are only 
a small percentage of their overall businesses. This would lessen 
competition and otherwise increase costs to the Government. The strong 
resistance also would extend to subcontractors and equipment suppliers, 
including many small businesses throughout the country, who might be 
held liable for an accident but not have the financial resources to 
cover that liability or the legal defense costs associated with such 
litigation.
    Reducing the number of potential contractors and suppliers to DOE 
would obviously have an adverse impact on their costs. Of even greater 
concern would be the potential adverse impact upon the overall quality 
and safety levels of DOE contract work since the most qualified and 
most safety conscious contractors and suppliers would most probably be 
the first to abandon DOE work because of inadequate liability 
protection.
    Contractor coverage prior to Price-Anderson often was inconsistent, 
subject to individual contract idiosyncrasies, inapplicable to 
subcontractors, and subject to the availability of appropriated funds. 
Subsection 170d was carefully designed to correct many of these 
deficiencies and to provide a uniform system of public protection. 
Without Price-Anderson, DOE would be faced with performing its missions 
with small, lightly capitalized contractors or Federal employees. In 
those situations, the public would not be as well protected. 
Contractors without assets could not pay claims. Use of Federal 
employees would mean that the Federal Tort Claims Act would apply, 
which would eliminate jury trials and the possibility of class actions, 
and require the submission of individual administrative claims.
    The Price-Anderson system specifically was developed to provide 
assurance that significant sums of money would be available over an 
extended period of years to make prompt payment to victims in the 
remote case of a nuclear accident. The only fundamental change since 
the original adoption of Price-Anderson in 1957, has been the 
revolutionary change in the American tort system, most of which has 
occurred over the last twenty-year period. This change has increased 
greatly the unpredictability of the probable dollar damages resulting 
from any major accident, whether it is nuclear or non-nuclear in 
nature. This makes a system such as Price-Anderson only more essential 
for the period beyond 2002.
    Unlike NRC-licensed nuclear power plants that are ``grandfathered'' 
under Price-Anderson (i.e., their coverage lasts for the duration of 
their license), DOE sites and facilities are not. Most DOE contracts 
expire in five years or less. Indemnity in DOE contracts signed or 
extended prior to the Act's expiration will remain in effect for the 
duration of the contract, but contracts entered into or extended after 
that date will have no indemnity. There are major DOE contracts that 
will be coming up for renewal as early as September 2002. Therefore, it 
is critical to the public to have Congress renew the Act before its 
2002 expiration.
    In conclusion, the Price-Anderson indemnity system should be 
continued in substantially its present form. It should also be 
clarified that the Act does apply to the new National Nuclear Security 
Administration. After nearly forty-five years of Price-Anderson Act 
indemnification, private industry has assumed, as Congress intended, a 
larger role in assisting the Federal Government in carrying out its own 
nuclear activities without any significant damage or injury to the 
public. In other words, Price-Anderson contractor indemnification is a 
system that has worked well. It should promptly be extended again.
    Thank you again for this opportunity to testify before your 
Subcommittee.

    Mr. Largent. Thank you, Dr. Womack. I am not even going to 
attempt to try to pronounce your name. Is it Quattrocchi?
    Mr. Quattrocchi. Quattrocchi.
    Mr. Largent. Quattrocchi. He is a senior vice president of 
Underwriting for the American Nuclear Insurers, and we welcome 
your testimony. You have 5 minutes to summarize it.

                STATEMENT OF JOHN L. QUATTROCCHI

    Mr. Quattrocchi. Thank you for the opportunity to address 
the subcommittee today, Mr. Chairman. Yes, the name is John 
Quattrocchi, although for obvious reasons most people refer to 
me as John Q. I am chief underwriting officer at the American 
Nuclear Insurers, which I will abbreviate today as ANI.
    I am here today representing the member companies of ANI, 
which are some of the largest insurers in the United States. 
ANI, by way of background, is a joint underwriting association 
or a pool of insurance companies that were formed for the very 
special purpose of insuring the nuclear risk. We were created 
in 1956 in response to Congress' desire for the insurance 
industry to find a way to insure what was then a new 
technology. Now, we worked very closely with Congress in those 
early days to develop the Price-Anderson Act, which is 
essentially an insurance program.
    The law had several purposes in mind. The first was to 
encourage private development. The second was to establish a 
framework for handling potential claims. The third was to 
provide a ready source of funds to compensate injured victims 
of an accident. My purpose then today is to let you know that 
from our perspective, as insurers, the act has served the 
American public well and should be renewed with little, if any, 
change.
    Let me just quickly mention a couple of the key provisions 
of the act that have allowed us, as insurers, to provide this 
market for more than 40 years without interruption. First, the 
law requires reactor operators to maintain primary financial 
protection equal to the maximum amount of liability insurance 
available from private sources. That requirement is satisfied 
under nuclear liability policies that we write. Over the years, 
the primary insurance limit has increased from $60 million in 
1957 to $200 million today. The primary limit was last 
increased in 1988, coincident with the last renewal.
    Second point, in the event of loss that exceeds the primary 
limit, the law requires reactor licensees to participate in 
what is called a secondary financial protection program, which 
we at ANI administer. Under that program, each licensee is 
retrospectively assessable for any loss in excess of a primary 
limit up to a maximum assessment of roughly $88 million per 
reactor, per accident. So the second layer of protection is 
actually drawn from reactor operators' own funds. And with 106 
reactors still in this secondary program, the level of 
financial protection available for the public is just over $9.5 
billion.
    Now, there are a number of other key provisions in the law 
critical to our interests as insurers and to the public. Those 
are outlined in my formal testimony, and I won't go through 
them now.
    But just some other quick points. I mentioned earlier that 
our primary limit has not been increased since 1988, and 
obviously inflation has taken a toll. So assuming that the act 
is renewed essentially in tact, we will canvass our member 
insurance companies to see if we can increase that primary 
limit to something in the range of $300 million. We have also 
begun talking with industry representatives about their 
interest in a possible new coverage that would pay the 
retrospective assessment in the second layer for the reactor 
that has the accident. We think that in the unlikely event of 
an accident that requires assessments, the utility that 
actually suffers the accident will be under the most severe 
financial pressure. And this new coverage would shift that 
pressure to insurers, at least for one full retrospective 
assessment.
    Now, I will just sum up by saying that the financial 
protection this law provides far surpasses any other system 
which we know of. The act is clearly in the public interest. In 
its first true test in 1979, after the Three Mile Island 
accident, it served the public well. We, as insurers, responded 
under the act within 24 hours of the evacuation advisory. We 
made emergency assistance payments to some 3,100 families 
without requiring a liability waiver of any kind. I was part of 
that effort, and I am proud that we were able to help those 
people affected by the accident.
    Now, there is a little amusing story, and a short story, I 
should add, that I shared with the Senate Energy Committee 
yesterday and I would like to share with you today. I think it 
illustrates the difficult time that was evident during that 
accident. The insurance team that I was with was staying in a 
motel that was roughly 10 miles from the accident site. And the 
motel was very nearly deserted. At breakfast one morning, I 
spotted a young family, a husband and wife, two children. The 
husband and wife were clearly distraught at what they thought 
would be serious consequences here to the children.
    A waitress walked over to the table and she tried to 
console the family. She said to them, ``Do you see those people 
seated over there? They are with the insurance company, and 
there is no way they would be here if we were in any real 
danger.'' And then she added, ``But watch them very carefully, 
because when they leave we leave.''
    Now, I don't expect that to happen again, but if it does, 
the public needs the protection that this act provides. We, 
therefore, urge the members of the subcommittee and the full 
committee to support renewal of the act in its existing form.
    I thank you for your time and the opportunity to express 
the views of insurers on this important issue. I would be happy 
to respond to questions, and I would ask that my full testimony 
be entered into the record. Thank you.
    [The prepared statement of John L. Quattrocchi follows:]
   Prepared Statement of John L. Quattrocchi, Senior Vice President, 
                Underwriting, American Nuclear Insurers
    Mr. Chairman and distinguished members of the Subcommittee, I am 
John Quattrocchi, Senior Vice President, Underwriting at the American 
Nuclear Insurers--or ANI. Joining me today is Mr. Tim Peckinpaugh, 
Washington, D.C. Counsel to ANI. We appear today on behalf of the 
member insurance companies of ANI. The National Association of 
Independent Insurers also joins in our statement. We appreciate your 
invitation to present our views on the nuclear risk with a special 
focus on the financial protection requirements of the Price-Anderson 
Act.
    ANI is a joint underwriting association that acts as managing agent 
for its member insurance companies. We are, in effect, a ``pool'' of 
insurance companies formed for the purpose of insuring a unique risk. 
Together with our reinsurance partners from around the world, we 
represent the worldwide insurance community.
    We will not dwell on the advantages of nuclear power. We are not 
advocates for any particular energy source. However, as professional 
insurers and long-term observers of the energy scene, we believe 
nuclear power represents a safe, reliable and environmentally friendly 
part of our nation's energy mix. The nuclear industry has achieved an 
impressive safety record and, as insurers, we are proud of the role 
we've played in supporting their efforts.
    ANI and its predecessor organizations were created in 1956 in 
response to Congress' urging that insurers find a way to insure what 
was then a fledgling technology. We worked closely with Congress and 
with the industry to develop the Price-Anderson law. The law is 
essentially an insurance program that had several purposes in mind.

 The first was to encourage the private development of nuclear 
        power.
 The second was to establish a legal framework for handling 
        potential liability claims.
 And the third was to provide a ready source of funds to 
        compensate injured victims of a nuclear accident.
    The Act represents a careful balancing of the interests of the 
public as private citizens and as participants in and beneficiaries of 
private business enterprise. We also believe the Act has been critical 
in enabling us to provide stable, high quality insurance capacity for 
nuclear risks in the face of normally overwhelming obstacles for 
insurers--those obstacles being catastrophic loss potential, the 
absence of credible predictability, a very small spread of risk and 
limited premium volume. This has been accomplished for more than four 
decades without interruption and without the ``ups and downs'' (or 
market cycles) that have affected nearly all other lines of insurance.
                key provisions of the price-anderson act
Financial Protection 1 . . . In Two Layers
---------------------------------------------------------------------------
    \1\ Defined in Section 11.k. of the Atomic Energy Act of 1954, as 
amended.
---------------------------------------------------------------------------
    To assure a source of funding to compensate accident victims, the 
law requires reactor operators to maintain primary financial protection 
equal to the maximum amount of liability insurance available from 
private insurance sources at reasonable terms.2 This 
provision has enabled insurers to develop and sustain secure, high 
quality insurance capacity from worldwide sources. Evidence of this 
lies in the stability of limits, price and coverage that insurers have 
provided in what is a very special line of business. Indeed, primary 
insurance limits actually increased after the Three Mile Island (TMI) 
accident in 1979 from $140 million to $160 million, and prices rose 
only modestly. The primary limit was last increased to $200 million in 
1988 coincident with the last renewal of the Act. This limit is written 
by ANI at each operating power reactor site in the U.S., which 
satisfies the requirement for primary financial protection.
---------------------------------------------------------------------------
    \2\ The Atomic Energy Act of 1954, as amended, Section 170.b.(1).
---------------------------------------------------------------------------
    The Act also requires reactor operators to participate in an 
industry-wide retrospective rating program for loss that exceeds the 
primary insurance limit.3 ANI writes a Secondary Financial 
Protection (SFP) Master Policy through which we administer the SFP 
program. Under this policy, each insured is retrospectively assessable 
for loss that exceeds the primary insurance limit up to a maximum 
retrospective assessment currently set at $88.095 million (adjusted 
every five years for inflation) per reactor, per incident. In other 
words, the second layer of protection is drawn from reactor operators' 
own funds. Insurers have a contingent liability to cover potential 
defaults of up to $30 million for one incident or up to $60 million for 
more than one incident. Under the terms of the contract, however, ANI 
would expect to be reimbursed with interest for any funds it advances 
under this program. With 106 reactors in the program, the total level 
of primary and secondary financial protection is just over $9.5 billion 
($200 million in the primary layer + $88.095 million in the secondary 
layer X 106 reactor units participating).
---------------------------------------------------------------------------
    \3\ Ibid.
---------------------------------------------------------------------------
Limitation on Aggregate Public Liability 4
---------------------------------------------------------------------------
    \4\ The Atomic Energy Act of 1954, as amended, Section 170.e. (1) 
(A) and Section 170.o. (1) (E).
---------------------------------------------------------------------------
    The Act limits the liability of reactor operators or others who 
might be liable for a nuclear accident to the combined total of primary 
and secondary financial protection, though Congress is committed to 
providing additional funds if financial protection is insufficient. 
5 Knowing the extent of one's liability provides economic 
stability and incentives that would not exist without a limit.
---------------------------------------------------------------------------
    \5\ The Atomic Energy Act of 1954, as amended, Section 170.e. (2).
---------------------------------------------------------------------------
Legal Costs Within the Limit 6
---------------------------------------------------------------------------
    \6\ The Atomic Energy Act of 1954, as amended, Section 170.e. (1) 
(A).
---------------------------------------------------------------------------
    The expenses of investigating and defending claims or suits are 
part of and not in addition to the limit of liability. The inclusion of 
these costs within the limit enables insurers to offer their maximum 
capacity commitments without fear of exceeding those commitments. This 
provision is absolutely essential if insurers are to maintain and 
hopefully increase the assets they place at risk.
Economic Channeling of Liability 7
---------------------------------------------------------------------------
    \7\ The Atomic Energy Act of 1954, as amended, Section 11.t. and 
170.c.
---------------------------------------------------------------------------
    The Act channels the financial responsibility and insurance 
obligation for public liability claims to the nuclear plant operator. 
This helps assure that injured parties will be able to establish with 
certainty liability for a nuclear accident that will be backed by solid 
financial resources to respond to those liabilities.
Waiver of Defenses 8
---------------------------------------------------------------------------
    \8\ The Atomic Energy Act of 1954, as amended, Section 170.n. (1).
---------------------------------------------------------------------------
    In the event of what is called an Extraordinary Nuclear Occurrence 
(ENO),9 insurers and insureds waive most standard legal 
defenses available to them under state law.10 The effect of 
this provision is to create strict liability for a severe nuclear 
accident. Claimants in these circumstances need only show that the 
injury or damage sustained was caused by the release of nuclear 
material from the insured facility. Fault on the part of a particular 
defendant does not have to be established.
---------------------------------------------------------------------------
    \9\ Defined in Section 11.j. of the Atomic Energy Act of 1954, as 
amended. Without citing all the specifics, the term refers to a 
significant nuclear incident that results in severe offsite 
consequences.
    \10\ The legal defenses waived in the policy include (i) any issue 
or defense as to the conduct of the claimant or the fault of the 
insured, (ii) any issue or defense as to charitable or governmental 
immunity, and (iii) any issue or defense based on any statute of 
limitations if suit is instituted within three years from the date on 
which the claimant first knew, or reasonably could have known, of his 
bodily injury or property damage and the cause thereof.
---------------------------------------------------------------------------
Federal Court Jurisdiction in Public Liability Actions 11
---------------------------------------------------------------------------
    \11\ The Atomic Energy Act of 1954, as amended, Section 170.n. (2).
---------------------------------------------------------------------------
    Historically, state tort law principles have governed nuclear 
liability determinations. The Price-Anderson Act provides for a federal 
overlay to the application of state law. The Act confers jurisdiction 
over public liability actions on the Federal District Court in which 
the accident occurs. This removes the confusion and uncertainties of 
applicable law that would otherwise result when multiple claims and 
lawsuits are filed in multiple courts. The provision also reduces legal 
costs and speeds the compensation process.
Precautionary Evacuations 12
---------------------------------------------------------------------------
    \12\ Defined in Section 11.gg. of the Atomic Energy Act of 1954, as 
amended.
---------------------------------------------------------------------------
    The system anticipates that insurers will provide immediate 
financial assistance to people who are forced to evacuate their homes 
because of a nuclear accident or because of imminent danger of such an 
event.
    The Act, and these provisions in particular, have stood the test of 
time and served the public well as demonstrated by the response at 
Three Mile Island.
                   the accident at three mile island
    The accident at Three Mile Island occurred on March 28, 1979. 
Within twenty-four hours of the Pennsylvania Governor's advisory for 
pregnant women and pre-school age children to evacuate a five-mile area 
around the site, we had people in the area making emergency assistance 
payments. Two days later, a fully functioning claims office staffed 
with some 30 people was open to the public. The claims staff grew to 
over 50 people within the next two weeks. All of the claims staff came 
from member insurance companies from around the country. I spent about 
10 days at the claims office shortly after it opened to lend whatever 
support I could.
    As the office was being set up, we placed ads on the radio, 
television and in the press informing the public of our operations and 
the location of the claims office. Those people affected by the 
evacuation advisory were advanced funds for their immediate out-of 
pocket living expenses, that is to say, expenses for food, clothing, 
shelter, transportation and emergency medical care. Approximately $1.3 
million in emergency assistance payments were made to some 3,100 
families without requiring a liability waiver of any kind.
    We responded as quickly as we did because we had prepared for 
emergencies in advance. Emergency drills were conducted periodically, 
and an emergency claim response manual helped guide our response. 
Checks and other claim forms that had been pre-printed and stored for 
emergencies were immediately available to us. The insurance industry 
received high praise for its quick response at TMI. In responding as we 
did, we helped to alleviate some of the fear and dislocation of those 
affected by the accident.
                 policy coverage and claims experience
    The nuclear liability policy written for nuclear site operators is 
designed to respond to an insured's liability for damages because of 
bodily injury or offsite property damage caused by a large, sudden 
catastrophic accident. However, it can also respond to allegations of 
injury from very small amounts of nuclear material. That bears 
repeating. In addition to providing coverage for catastrophic events, 
we are providing coverage for alleged offsite damages from normal plant 
operations.
    All of our insured facilities release very small amounts of 
material within acceptable regulatory limits. But the public perception 
of what is ``acceptable'' and what constitutes ``damage'' is a moving 
target. Indeed, almost all of our claims allege injury or damage (or 
fear of future injury or damage) from little or no documented radiation 
exposure. And, with the exception of the accident at Three Mile Island, 
few of the claims from members of the offsite public are the result of 
a clearly identifiable event. Instead, our claims experience is more 
related to routine releases and the latent injury phenomenon now 
popular--at least in the U.S.--in the toxic torts arena. The alleged 
damages usually involve somatic, psychosomatic or genetic effects from 
exposure to radiation at de minimis levels.
    From inception, ANI has handled some 205 reported claims or 
incident notifications. We've paid just under $187 million for 
indemnity and legal defense and have incurred losses of $463 million, 
all through March 1 of this year. The difference between the paid and 
incurred loss figures represents what is reserved for indemnity and 
defense on outstanding claims.
    Radiation claims are costly to defend and there is often no 
relationship between the amount of radiation alleged and the expense 
necessary to defend the claim. While the judicial process is expensive, 
it does expose claims that have no basis in scientific fact. Given the 
finite resources available to compensate truly injured victims, it 
serves no one's interest for insurers to compensate claims without 
merit. The importance of the legal framework established in the Act, 
including the cost of defense within the system, cannot therefore be 
overstated.
        nrc's report to congress . . . primary liability limits
    In its 1998 Report to Congress on the status of the Act, the NRC 
strongly supported reauthorization of the Price-Anderson Act and 
offered eight recommendations. In the interest of time, and because the 
Subcommittee is, I'm sure, familiar with the report, I will focus 
particular attention on just one of the recommendations--specifically, 
that Congress discuss with insurers the potential for increasing the 
primary liability insurance limit. The NRC indicated in its report that 
an increase to roughly $350 million would at least keep pace with 
inflation since 1957.
    As was noted earlier in my testimony, the Act requires power 
reactor licensees to maintain primary financial protection equal to the 
maximum amount of liability insurance available from private sources at 
reasonable terms. But for this provision, it is doubtful that limits at 
the levels written could have been sustained without interruption or 
fluctuation for more than forty years. To illustrate the point, when, 
in the mid-1980's, liability insurance became unavailable at almost any 
price for conventional lines of business, nuclear liability insurers 
continued to provide a stable market for their limited customer base--
thanks, in part, to this provision.
    Liability limits have been increased periodically from $60 million 
in 1957 to $200 million presently. The limit was last increased to its 
present level in 1988 coincident with the last renewal of the Act. The 
attached Table of Limits outlines the history of primary liability 
limits from 1957.
    We believe an increase in the level of primary insurance coverage 
would benefit the system and enhance public protection for a number of 
reasons:

(1) The existing limit has not changed since 1988 and its value has, in 
        fact, been eroded by inflation. When measured against the rate 
        of inflation from 1988 to June 1998, the limit would have grown 
        to roughly $275 million. When measured against inflation from 
        1957 to June 1998, the limit would have increased to about $350 
        million.
(2) An increase in the primary limit to reflect the impact of inflation 
        is consistent with inflationary increases mandated by the 
        Price-Anderson law in the second layer. Section 170.t. of the 
        Act requires that the maximum retrospective premium in the 
        second layer be adjusted at five-year intervals. The maximum 
        retrospective premium in the second layer has, in fact, been 
        increased twice since 1988 to reflect the impact of inflation.
(3) A higher primary limit would provide an added buffer between loss 
        in the primary layer and retrospective assessments on utility 
        operators in the second layer. Sound funding for the remote but 
        nevertheless possible nuclear catastrophe calls for pre-funding 
        a substantial portion of the costs of that accident. The higher 
        the potential retrospective liabilities on the nuclear industry 
        in the second layer, the more desirable reasonable increases in 
        the primary insurance layer become.
(4) The number of reactor licensees can be expected to decrease in the 
        coming years as reactor units are sold to a relatively smaller 
        number of buyers. The effect of this would be to substantially 
        increase the maximum potential retrospective assessment on 
        those remaining operators at a time of severe economic stress 
        for nuclear utilities generally--that is to say, following a 
        large-scale nuclear accident. In these circumstances, a higher 
        primary liability limit would provide a better balance between 
        pre- and post-funded layers of accident protection, in effect 
        enhancing the protection to the public.
(5) Deregulation of the electric utility industry may hamper a 
        utility's ability to pass on to ratepayers the cost of a 
        retrospective assessment. A higher primary limit would reduce 
        the chances of, or at least delay, an assessment in the second 
        layer.
    Consistent with the long-standing objective of Congress to provide 
the most financial protection possible to compensate the public, we 
will work with our members and reinsurers to develop higher primary 
insurance limits coincident with the renewal of the Act. This assumes 
the Act is renewed in essentially its existing form. Any effort on our 
part to increase the primary limit would also have to be balanced 
against the needs and desires of our customer base. If these needs can 
be balanced, our goal would be to develop only capacity that is 
financially secure and committed for the long term. While I cannot 
provide any commitments at this time, a reasonable goal might be a 
primary limit in the range of $300 million, again assuming a 
satisfactory renewal of the Act.
              possible new protection in the second layer
    As my testimony has indicated, in the unlikely event that 
retrospective premiums in the second layer need to be assessed because 
of a severe nuclear accident, those assessments will be levied at a 
time of great political and financial stress. The pressures on the 
utility that suffers the accident will, in all likelihood, be the most 
severe. For that reason, we have begun to discuss with the industry a 
potential new coverage under the existing Secondary Financial 
Protection (SFP) program that would pay up to one full retrospective 
premium (currently up to $88.095 million) on behalf of the utility at 
whose site the accident occurs. Payment of this retrospective premium 
would be made on a guaranteed cost basis--that is to say, we would not 
expect to be reimbursed. Since coverage would apply on a guaranteed 
cost basis, we would have to secure additional capacity over and above 
whatever additional capacity might be developed for the primary layer.
    We envision that coverage would be added by endorsement to the 
existing SFP program for an additional per reactor premium. We would 
prefer that coverage be purchased on a voluntary basis and not made 
part of the financial protection requirements. For the coverage to be 
viable, at least half the number of reactor units in the SFP program 
would have to participate.
    This coverage would shift to the insurance industry some of the 
strain that would undoubtedly be felt within the utility industry after 
a severe nuclear accident. If the potential new coverage is something 
the industry desires, we will try to implement it coincident with the 
renewal of the Act, or as soon thereafter as reasonably possible.
                      price-anderson as a subsidy?
    Some have argued that Price-Anderson is a subsidy for the nuclear 
industry. For what it's worth from our perspective as independent 
insurers, that view is clearly inaccurate. We are not aware of any 
payments made by the Federal Government to private licensees under 
Price-Anderson. Indeed, the industry not only pays the cost of the 
insurance required by the Act, it has paid millions of dollars in 
indemnity fees and has assumed more than $9 billion in potential 
retrospective assessments to compensate injured accident victims--all 
of this at no cost to the government.
    Some argue that the Act's limitation on liability is a subsidy for 
the industry in that it limits potential recoveries of accident 
victims. The fact is, however, that, in exchange for the limit on 
liability, the Act provides for a large, ready source of funds for 
accident victims that would not otherwise exist.
    Insurers have a great deal of experience handling litigation that 
is ``unfettered'' by limitations on liability. No case stands out in my 
mind more than the Bhopal accident in India in 1984. As many as 4,000 
people died and another 500,000 were injured. After years of 
litigation, Union Carbide settled with the Indian Government for $470 
million--or roughly $1,000 in compensation for each of those killed or 
injured.
    The simple fact is that there is always a limit on liability--that 
limit equal to the assets of the company at fault. Those who helped 
shape the Price-Anderson Act understood that fact. It was their belief 
that those who share in the benefits of nuclear energy should also 
share in the risks through a system of solid financial protection 
provided by industry and by government.
    Beyond serving the public interest, the limitation on liability 
enables insurers to quantify their potential liabilities. Without the 
limitation, suppliers and others who might incur potential nuclear 
liabilities would be forced to seek separate insurance protection for 
their own accounts, in turn, exposing insurers to unacceptable 
accumulations. In these circumstances, the level of available liability 
insurance might well diminish.
                               conclusion
    To the best of our knowledge, the financial protection that the Act 
provides the public far surpasses the performance of any other system 
in place in the United States. The essential fact is that the public is 
far better off with this system of financial protection than without 
it. For us as insurers, its provisions make an otherwise difficult risk 
insurable. We therefore urge the members of this Subcommittee to 
support expeditious renewal of the Act with little if any change as 
recommended by the NRC report to Congress and the Administration's 
National Energy Policy released last month. In terms of the legislation 
pending before this Subcommittee, we support in general the Price-
Anderson reauthorization provisions of H.R. 1679, the Electricity 
Supply Assurance Act of 2001 (Subtitle A of Title I).
    We are grateful to the Committee for the opportunity to express the 
views of insurers on this important issue.

                             Table of Limits
  History of Maximum Nuclear Liability Insurance Available from 1957 to
                                 Present
------------------------------------------------------------------------
                                              Liability
                                            Limits  ($ in    % Increase
                                               Million)
------------------------------------------------------------------------
1957.....................................              60         -----
1966 *...................................              74          23.3
1969.....................................              82          10.8
1972.....................................              95          15.8
1974.....................................             110          15.8
1975 *...................................             125          13.6
1977.....................................             140          12.0
1979.....................................             160          14.3
1988 *...................................             200          25.0
------------------------------------------------------------------------
* Coincident with the renewal of the Price-Anderson Act.


    Mr. Largent. So ordered, and we thank you, Mr. Quattrocchi.
    And now we recognize Ms. Aurilio, who is the legislative 
director with U.S. Public Interest Research Group. You have 5 
minutes. Thank you.

                    STATEMENT OF ANNA AURILIO

    Ms. Aurilio. Thank you. Good afternoon. My name is Anna 
Aurilio, and I am the legislative director with U.S. PIRG. We 
are the national lobbying office for the State public interest 
research groups. We are non-profit, non-partisan consumer, 
environmental and good government organizations active across 
the country. I have also submitted this testimony on behalf of 
Friends of the Earth.
    We have a long history of working for clean, affordable 
energy future. We actually have a web site now called 
newenergyfuture.com to talk about our vision. Our goal is to 
shift away from polluting dangerous sources of energy, such as 
nuclear and fossil energy, and to increase energy efficiency, 
which saves consumers money, and clean renewable energy 
sources.
    Nuclear power is not part of our vision for the future. It 
is unsafe, unreliable, uneconomic, and generates dangerous 
wastes for which there is no safe solution. We believe it 
should be phased out as soon as possible and should not be 
encouraged as a future energy source. We also believe that the 
President's energy plan is very misguided in this regard. He 
believes that we would need to build 1,300--at least 1,300 new 
power plants to meet future electricity demand.
    In fact, both the Department of Energy's clean energy 
future report and the Union of Concerned Scientists report show 
that we can meet the vast majority of future electricity demand 
by increasing energy efficiency, shifting to renewable energy 
sources. This would all occur at consumer savings of tens or 
hundreds of billions of dollars. And that at least half of the 
1,300 power plants that are proposed by the President are 
actually already in the pipeline. Whether anybody likes them or 
agrees with them or not, they are already in the pipeline, 
according to the Energy Information Administration. So we 
actually don't need to build any dirty, new power plants.
    Nuclear power wouldn't exist today if it weren't for 
massive Government subsidies and other unfair policies. In 
fact, I have even quoted Jerry Taylor of the Cato Institute who 
says, ``The nuclear industry is purely a creature of 
Government. The administration needs to practice the free 
market rhetoric that it preaches and put away its nuclear pom-
poms.''
    The Price-Anderson Act represents just one of the 
unwarranted subsidies enjoyed by the nuclear industry. Others 
include the lion's share, or at least 60 percent, of Federal 
research and development money, a Federal nuclear waste 
disposal program and more than $100 billion in ratepayer 
bailouts dues to State deregulation programs.
    The Price-Anderson Act, which is what I am going to focus 
the rest of my testimony on, guarantees protection for the 
nuclear industry while the public would have to beg before 
Congress for compensation if there were a large catastrophic 
nuclear accident. It does not guarantee full compensation for 
victims of a nuclear accident; it perpetuates a long history of 
subsidies and unfair policies, which reward the industry at 
public expense; and it exempts contractors from liability for 
public damages, as Congressman Markey pointed out, even if they 
were reckless or wilfully negligent.
    The Price-Anderson Act was first passed in 1957. It was 
supposed to be a temporary measure for a fledgling industry. 
Today, the industry has grown enormously, and it has reaped 
enormous profits. It has reaped substantial benefits from 
Price-Anderson coverage, from the Nuclear Waste Program, from 
ratepayer bailouts at the State level. Meanwhile, victims of a 
major nuclear accident would still not be guaranteed 
compensation in case of an accident. This is not good 
government. The Price-Anderson Act should not be renewed and 
should either be radically reformed or replaced by legislation 
that truly protects the public and truly provides incentives 
for safe conduct.
    I want to highlight some of our concerns with nuclear 
safety. First of all, the nuclear fleet today is aging, and we 
are extremely concerned about some of the aging related 
problems that seem to be ignored by the industry and the 
regulators. In particular, over the last year, according to the 
Union of Concerned Scientists, there have been at least nine 
reactor shutdowns due to aging related problems. Rather than 
provide incentives or changing safety rules to make it easier 
for the nuclear industry to extend its licenses, I would hope 
that this committee actually would look a little bit more 
closely at aging related problems. I think this is a serious 
problem.
    Going back to the Price-Anderson Act with regard to new 
reactors, the gas-cooled reactor designs, which actually 
Congress, wisely, in 1995, killed funding for one of the gas-
cooled reactor designs, in part, because two National Academy 
of Sciences studies said that it wasn't warranted, and in part 
because it was going to cost an enormous amount of money for 
taxpayers, these designs lack conventional containment. And, 
again, as one of the congressmen pointed out, the Price-
Anderson Act actually shields builders and designers of nuclear 
power plants for liability, and yet the folks who are promoting 
these new designs that would lack conventional containment want 
to pay less, not more, in case of a nuclear accident. That 
doesn't make sense, and I have a solution for those who worry 
about smaller nuclear reactors not wanting to pay as much as 
the----
    Mr. Barton. Could you give us your solution in the next 15 
seconds?
    Ms. Aurilio. Absolutely. I am sorry. I didn't have one of 
those lights in front of me.
    Mr. Barton. I know. I have given you an extra minute, so we 
are trying to be gracious.
    Ms. Aurilio. I will wrap up by saying for those folks who 
worry about having to pay into the fund, new nuclear reactors 
just shouldn't be covered by Price-Anderson, and you should go 
to the private industry and get your own coverage. Thank you.
    [The prepared statement of Anna Aurilio follows:]
 Prepared Statement of Anna Aurilio, Legislative Director, U.S. Public 
Interest Research Group on Behalf of the U.S. Public Interest Research 
                     Group and Friends of the Earth
    Good morning, my name is Anna Aurilio and I'm the Legislative 
Director of the U.S. Public Interest Research Group, or U.S. PIRG. U.S. 
PIRG is the national office for the State PIRGs, which are 
environmental, good government and consumer advocacy groups active 
around the country. Thank you for the opportunity to speak today.
    The state PIRGs have a long history of working for a clean 
affordable energy future. Our goal is to shift from polluting and 
dangerous sources of energy such as nuclear and fossil energy to 
increased energy efficiency and clean renewable energy sources.
    Nuclear power is unsafe, unreliable, uneconomic and generates long-
lived radioactive wastes for which there is no safe solution. We 
believe it should be phased out as soon as possible and should not be 
encouraged as a future energy source.
    Nuclear power would not exist today if it weren't for massive 
government subsidies and other unfair policies. Jerry Taylor of the 
Cato Institute agrees.
        In the final analysis, the nuclear industry is purely a 
        creature of government. The administration needs to practice 
        the free-market rhetoric that it preaches and put away its 
        nuclear pompoms.1
---------------------------------------------------------------------------
    \1\ Taylor, J., ``Nuclear Power Play'', Washington Post, 5/18/01.
---------------------------------------------------------------------------
    The Price Anderson Act represents just one of the unwarranted 
subsidies enjoyed by the industry. Others include: the lion's share, or 
60%, of federal research and development dollars since 1948 
2; a federal nuclear waste disposal program 3, 
and more than $100 billion in ratepayer bailouts from state utility 
deregulation plans.4
---------------------------------------------------------------------------
    \2\ Congressional Research Service
    \3\ http://www.greenscissors.org/energy/nuclearwastefundfee.htm
    \4\ http://www.safeenergy.org/ratepayer.htm
---------------------------------------------------------------------------
    During reauthorization of the Price-Anderson Act in the 1980's, the 
PIRGs, the Environmental Policy Institute (the predecessor to Friends 
of the Earth) and other environmental, consumer and taxpayer groups 
advocated for reforms of the Price Anderson Act. Our policy then, as it 
is now, is that the American public deserves a sound and responsible 
nuclear accident policy. Such a policy would accomplish three 
fundamental goals:

 Assure full compensation of any nuclear accident victims,
 Protect taxpayers from subsidizing nuclear industry 
        negligence, and
 Increase safety incentives and require high standards of 
        industry accountability.
    Unfortunately, the Price Anderson Act as (amended in 1988) does not 
accomplish these goals. Instead, this Act does not guarantee full 
compensation for victims of a nuclear accident, perpetuates a long 
history of federal subsidies and policies which reward the nuclear 
industry at public expense, and exempts contractors from liability for 
public damages even if they were reckless or willfully negligent.
                               background
    Enacted in 1957, the Price Anderson Act was intended to be a 
temporary solution to a temporary problem--the refusal of insurers to 
underwrite nuclear risks. According to a 1957 Senate report, it was 
expected that after the Act expired in ten years, ``...the problem of 
reactor safety will be to a great extent solved and the insurance 
people will have had an experience on which to base a sound program of 
their own.'' 5
---------------------------------------------------------------------------
    \5\ Berkovitz, Dan ``Price-Anderson Act: Model Compensation 
Legislation?--The Sixty-Three Million Dollar Question, Harvard 
Environmental Law Review, 1989.
---------------------------------------------------------------------------
    Forty-four years later, few of these expectations have been 
realized. Many of the problems of reactor safety continue to be 
unsolved. In addition certain reactor components such as reactor 
pressure vessels and steam generator tubes have exhibited unanticipated 
aging-related problems. The nuclear industry continues to be unwilling 
to assume the risks of its activities.
    In its current form, the Price-Anderson limits liability for 
damages to the public in the case of a nuclear accident. The Act 
expires on August 1, 2002. Existing reactors will continue to operate 
under the current system if it is not extended.
    Price Anderson currently requires owners of licensed commercial 
reactors to carry $200 million of liability insurance. If claims 
following an accident exceed that amount, all commercial reactor 
operators must contribute up to $83.9 million per reactor. With 106 
reactors currently covered by Price-Anderson, the total pool of funds 
is approximately $9.09 billion for public compensation.6 The 
public has no legal right to compensation for damages exceeding the 
limit. Price-Anderson leaves this question to Congress.7 
Companies that build, design, and supply parts for nuclear power plants 
are completely exempt from public liability.8
---------------------------------------------------------------------------
    \6\ Holt M. and Behrens C., ``Nuclear Energy Policy'', 
Congressional Research Service IB88090, 3/22/01, p.14.
    \7\ 42 U.S.C. 2210(e).
    \8\ Berkovitz, Dan ``Price-Anderson Act: Model Compensation 
Legislation?--The Sixty-Three Million Dollar Question, Harvard 
Environmental Law Review, 1989.
---------------------------------------------------------------------------
    DOE contractors are indemnified up to a total of $9.43 billion. 
This means taxpayers could pay $9.43 billion in case of an accident 
cause by a DOE contractor regardless of the contractor's conduct. While 
the 1988 amendments allow DOE to assess civil fines and penalties 
against its contractors, it specifically exempts seven non-profit 
institutions. These institutions plus their for-profit subcontractors 
are exempt from civil penalties.
    The seven institutions listed in the Price Anderson Act are: The 
University of Chicago for activities at Argonne National Laboratory; 
The University of California for activities at Los Alamos; Lawrence 
Livermore, and Lawrence Berkeley National Laboratories; American 
Telephone and Telegraph and its subsidiaries for activities at Sandia 
National Laboratory (now operated by Lockheed Martin which is subject 
to civil penalties); Universities Research Association for activities 
at FERMI National Laboratory; Princeton University for activities at 
the Princeton Plasma Physics Laboratory; the Associated Universities 
Inc for activities at Brookhaven National Laboratory ( now operated by 
Brookhaven Science Associates which is subject to civil penalties) and 
Battelle Memorial Institute for activities associated with the Pacific 
Northwest Laboratory.9
---------------------------------------------------------------------------
    \9\ U.S. DOE, ``Report to Congress on the Price Anderson Act,'' 
March 1999, p. 23.
---------------------------------------------------------------------------
    the price anderson act is an unwarranted subsidy to the nuclear 
                                industry
    Because reactor operator liability is limited, the Price Anderson 
Act denies accident victims full compensation and will inevitably 
result in either taxpayers or victims footing the bill for catastrophic 
nuclear accidents. Because DOE contractors are not held responsible for 
any public damages in nuclear accidents they cause, the taxpayer will 
foot the bill for commercial nuclear waste transport accidents, 
accidents at research reactors and weapons site cleanups. Taxpayers 
will foot the bill for DOE contractor accidents even if they resulted 
from recklessness, gross negligence, or intentional disregard for 
public health and safety. The companies that design, build and supply 
parts for nuclear power plants are totally exempt from any liability 
for damages to the public. These commercial nuclear contractors are not 
responsible for damages to the public even if they were reckless, 
grossly negligent, or intentionally disregarded public health and 
safety.
    Estimates of the value of this subsidy to nuclear power plant 
owners range from $3.45 million 10 to $33 million 
11 (2001 dollars) per reactor per year. With 106 reactors 
covered, is a total annual subsidy to the nuclear industry of $366 
million to $3.5 billion.
---------------------------------------------------------------------------
    \10\ Heyes, A, and Liston-Heyes, C. ``Liability Capping and 
Financial Subsidy in North American Nuclear Power; Some Financial 
Results based on Insurance Data,'' Department of Economics, University 
of London, England.
    \11\ Dubin, J.A. and Rothwell, G.S. ``Subsidy to Nuclear Power 
Through Price Anderson Liability Limit,'' Contemporary Policy Issues, 
Vol III, July, 1990.
---------------------------------------------------------------------------
    The nuclear industry and its cheerleaders keep touting the safety 
of nuclear power and its cost-effectiveness. Yet, they are here today, 
asking that they not be held fully responsible for the public 
consequences of designing, building and operating these ``safe'' 
reactors and transporting the lethal waste generated from these 
activities.
    Even the Vice President admits that the industry needs continued 
subsidies. If the Price Anderson Act is not renewed, Vice President 
Cheney said, ``Nobody's going to invest in nuclear power plants.'' 
12
---------------------------------------------------------------------------
    \12\ ``Cheney Says Push Needed to Boost Nuclear Power,'' Reuters 
News Service, 5/15/01.
---------------------------------------------------------------------------
    The industry cannot have it both ways. If nuclear power is cost-
effective and safe, then the nuclear industry should bear full 
liability for the costs of a nuclear accident. Insurance for these 
risks should be internalized as a cost of doing business, just as it is 
for every other industry. The Act should not be re-authorized in its 
current form. Either Congress should radically reform the Price 
Anderson Act or it should enact separate legislation, which will 
provide fair and full compensation to the public in the event of a 
nuclear accident.
the price anderson act protects the nuclear industry but not the public
    Under Price Anderson, nuclear reactor operators get a guarantee of 
limited liability for public damages in the event of a nuclear 
accident. The designers, builders and suppliers of the reactors are 
exempt from all liability for damage to the public. DOE contractors are 
fully indemnified by the government. In contrast, the public gets no 
guarantee of full compensation.
    All players in the last Price Anderson debates, including the 
Nuclear Regulatory Commission (NRC), the Department of Energy, and the 
nuclear utilities testified in favor of full compensation for victims. 
Because liability is limited to a little more than $9 billion, no one 
is legally obligated to pay damages over the limit and no one has a 
right to recover for those damages. The current system puts much of the 
risk of a catastrophic nuclear accident on the shoulders of its 
victims. Victims would have to plead their case before 
Congress.13
---------------------------------------------------------------------------
    \13\ Magavern, W., Testimony to the Presidential Commission on 
Catastrophic Nuclear Accidents, 10/25/89.
---------------------------------------------------------------------------
    The question of who should pay when damages exceed the limit has 
never been fully resolved. If there is an accident, the money will have 
to come from somewhere, and we see only three choices. It will come 
from the victim's pockets, from the taxpayers' pockets, or the 
industry's pockets. We believe it should come from the industry. 
However, under the current law, it seems inevitable that taxpayers 
would foot the bill or victims would go uncompensated.
    The Price Anderson Act calls for Congressional action to ``provide 
full and prompt compensation to the public for all public liability 
claims resulting from a disaster of such magnitude.'' 14 On 
July 29, 1987, during the floor debate on amendments to the house bill 
(H.R. 1414) that was ultimately enacted into law, Representative Morris 
Udall described compensation for damages above the limit as the ``third 
level.''
---------------------------------------------------------------------------
    \14\ 42 U.S.C. 2210(e).
---------------------------------------------------------------------------
    The third layer is the disaster layer. Let us say the Indian Point 
Nuclear Plant in New York has a meltdown or some very serious matter 
affecting whole cities and regions. We could not decide whether that 
ought to be $20 billion or $50 billion or $100 billion or what, so we 
decided that the third layer will be determined by a commission 
appointed by the President and given two years to come up and say how 
we should handle claims above the $7 billion or $8 billion. Obviously, 
you would have to have a large amount of money, and it should not be 
the ratepayers of the nuclear utilities who paid for the first two 
levels. We believe, and so wrote the bill that the third level will 
come from ratepayers everywhere and taxpayers everywhere and the 
commission will tell us in advance how we ought to finance this and set 
it up and distribute the available money.15
---------------------------------------------------------------------------
    \15\ Report to the Congress on Catastrophic Nuclear Accidents, 
August, 1990, p.15.
---------------------------------------------------------------------------
    In 1990, as authorized by the Act, the Presidential Commission on 
Catastrophic Nuclear Accidents issued a report on ``the means of fully 
compensating victims of catastrophic nuclear accident that exceeds the 
amount of aggregate public liability.'' 16 While the report 
affirmed that victims be fully compensated, it ducked the question of 
who should pay.17 It should be no surprise that the 
Presidential Commission refused to lay the ultimate responsibility for 
public damages from a catastrophic nuclear accident on the shoulders of 
the responsible industry. For from being ``representative of a broad 
range of interests'' as required by the Price Anderson Act, it 
consisted entirely of men with ties to the nuclear 
industry.18
---------------------------------------------------------------------------
    \16\ U.S.C. 42 Section 2210 (i).
    \17\ Washington Post, ``Nuclear Claims Envisioned: Panel's Calls 
for Catastrophic Compensation Omits Source of Funds,'' 9/21/90.
    \18\ Testimony of Bill Magavern, Staff Attorney, U.S. PIRG to the 
Energy and Environmental Subcommittee of the House Interior 
Committee.9/26/90.
---------------------------------------------------------------------------
    We support a mechanism similar to that recommended in a report 
authored by the NRC in 1983 19. This would provide a legal 
guarantee of full compensation for victims. I would also retain the 
industry's protections against the full liability that it would have if 
there were no Price-Anderson scheme at all.
---------------------------------------------------------------------------
    \19\ NUREG -0957
---------------------------------------------------------------------------
    Basically, in order to shield both victims and taxpayers from 
unwarranted risk, the NRC unanimously recommended a system that would 
subject reactor licensees to annual assessments. Unlike current law 
which caps total retrospective premiums at $83.9 million, the 1983 NRC 
reported recommend these premiums be paid until all public liability 
has been satisfied. The NRC concluded that this approach represents the 
best alternative for minimizing the potential for both uncompensated 
losses by the victims of an accident and additional contributions by 
the taxpayers to meet public liability claims.
    According to the NRC report, the key to any fair and effective 
compensation scheme is the assurance that all valid claims will be 
paid. The current cap on total liability completely undermines that 
principle. Victims should not have to plead their case before Congress 
or go uncompensated. Federal taxpayers should not foot the bill, 
either.
    The nuclear industry that profited from the activities creating the 
risk of an accident should be obligated to pay all damages through 
these retrospective premiums. If that became overly burdensome, the 
industry could always go to Congress to get relief. That way, the 
burden is on the industry, not the victims or taxpayers.
    Currently, if there is an accident above $200 million, each nuclear 
operator contributes up to $10 million per reactor per year in 
``retrospective premiums'' until the current cap of $83.9 million is 
reached.20 In contrast, the 1983 NRC report recommended 
annual payments of $10 million per plant for as many years as necessary 
to compensate all public damages. Unfortunately, under pressure from 
the nuclear industry, all but one of the commissioners reversed their 
stance by the time Representative Markey chaired a hearing on the issue 
in July 1986. Commissioner James Asseltstine continued to support the 
original recommendation of no cap on total liability to protect 
taxpayers.
---------------------------------------------------------------------------
    \20\ Holt M. and Behrens C., ``Nuclear Energy Policy'', 
Congressional Research Service IB88090, 3/22/01,
---------------------------------------------------------------------------
        Having provided by law that the industry's liability would be 
        fixed at a specific dollar level and with new indemnity 
        contracts in effect which reflect this limited liability, I 
        think it will be difficult for the Congress to obtain 
        additional funding from the industry after an accident has 
        occurred. Thus, it is likely that additional funding to pay 
        liability claims, funding which could run into the billions of 
        dollars, would have to come from the federal 
        Treasury.21
---------------------------------------------------------------------------
    \21\ Testimony of James K. Asselstine, before the House Committee 
on Energy and Commerce, 7/17/86.
---------------------------------------------------------------------------
    PIRG and others supported lifting the total liability cap and 
replacing it with an annual cap during the debate over the 1988 
amendments. We believe that this would be a fair way to ensure that 
victims were compensated and the industry would have an affordable and 
predictable way to assure this.
    NRC recently recommended raising the retrospective premium to $20 
million per reactor per year (still capped at $83.9 million). NRC 
justified this increase that would ``. . . substantially increase the 
amount of funds available shortly after a nuclear accident to pay 
public liability claims but should not jeopardize the financial 
viability of the participating utilities.'' 22 Provisions to 
increase this premium are also contained in several bills introduced by 
members of this committee. Strangely, the NRC has now reversed its 
earlier recommendation.23
---------------------------------------------------------------------------
    \22\ NUREG/CR-6617 p. 131.
    \23\ ``NRC Drops Recommendation to Double Some Coverage in Price-
Anderson,'' Platt's Inside NRC, Vol 23, No 11, 5/21/01.
---------------------------------------------------------------------------
    As part of a more equitable nuclear accident compensation package, 
Congress should consider mechanisms to fully compensate victims of a 
catastrophic accident. One way would be to lift the total liability cap 
and implement the original 1983 NRC concept of an annual retrospective 
premium for as many years as necessary to compensate all public 
damages. Since NRC has more recently stated that the industry could 
afford a $20 million annual premium and that a higher premium would 
help victims get compensated faster, Congress should ensure that annual 
premiums be no lower than $20 million per reactor per year.
     the industry can afford to pay the full costs of an accident:
    The nuclear industry opposes paying its own way. Yet this industry 
has benefited greatly from unjustified federal and state subsidies. 
With deregulation of many state's electricity industry came billions in 
bailouts for the industry (and blackouts for hapless Californians!). 
These bailouts (also known as ``stranded costs'') have increased the 
profitability of nuclear power plants according to Lehman Brothers 
Managing Director and former NRC Commissioner James 
Asselstine.24
---------------------------------------------------------------------------
    \24\ Testimony of James K. Asselstine, Managing Director, Lehmann 
Brother, Inc. Before the Senate Energy and Natural Resources Committee, 
5/3/01.
---------------------------------------------------------------------------
    According to a report released in 1998 with the Safe Energy 
Communication Council entitled ``Ratepayer Robbery'' we estimated these 
bailouts could total more than $132 billion for just eleven states. 
Surely an industry that is receiving billions of dollars in public 
bailouts could afford $20 million per year per reactor to compensate 
the public in case of an accident. Along with unjustified bailouts, 
state deregulation bills have left consumers at the mercy of large, 
unregulated power generators. Several large nuclear operators are 
enjoying the high prices for electricity generated.
    For example, Southern Company, which operates six reactors reported 
net income for 2000 of $1.313 billion--a record profit for that 
company. In case of an accident, the $20 million retrospective premium 
represents less than 9% of their profits.
    Entergy, which touts itself as ``the fastest growing nuclear 
operator in the nation.'' 25is proposing to build new 
reactors and currently operates eight reactors, reported $160.9 million 
in net income for the first quarter of 2001, a nearly 50% increase from 
the same time last year. A $20 million retrospective premium for all 
its reactors is less than the profits for one quarter. This is a 
company that should be embarrassed to ask for a penny of taxpayer 
assistance.
---------------------------------------------------------------------------
    \25\ Testimony of C. Randy Hutchinson, Senior Vice President, 
Entergy, before the Energy and Air Quality Subcommittee of the House 
Energy and Commerce Committee, 3/27/01.
---------------------------------------------------------------------------
    Exelon Corporation touts itself as the ``largest nuclear generation 
operator in the country with approximately 20% of the nation's nuclear 
generation capacity.'' 26which is proposing to build a risky 
new reactor that would cut costs by not including conventional 
containment, reported $586 million in net income last year. This 
company has testified that the public should fund the work of the 
government agencies responsible for certifying the safety of these new 
designs.
---------------------------------------------------------------------------
    \26\ Testimony of Edward F. Sproat III, Vice President, Exelon 
Generation Company, before the Energy and Air Quality Subcommittee of 
the House Energy and Commerce Committee, 3/27/01.
---------------------------------------------------------------------------
    Duke Energy reported $1.776 billion in net income last year. Duke 
Power operates 7 reactors. A $20 million retrospective premium 
represents less than 8% of their profits.
                               conclusion
    The Price Anderson Act was supposed to be a temporary measure for a 
fledgling industry. Today that industry has grown enormously and has 
reaped substantial benefit from this and other taxpayer subsidies. 
Meanwhile, victims of a major nuclear accident would be left to plead 
their case before Congress. This is not good government. The Price 
Anderson Act should not be renewed and should be either radically 
reformed or replaced by legislation that truly protects the public.

    Mr. Barton. Thank you. The Chair would recognize himself 
for the first 5 minutes of questions.
    Mr. Skolds, you indicated that your company had provided a 
number of White Papers to the Nuclear Regulatory Commission on 
the proposed design, the Pebble Bed Reactor design, and also 
some of the issues associated with its licensing. If those 
aren't proprietary, we would like to have them at the 
subcommittee.
    Mr. Skolds. They will be provided.
    Mr. Barton. Okay.
    Second question to you, Mr. Skolds, Mr. Strickland is not 
here, but he has pointed out that we are in the process of 
shutting down the uranium enrichment plant in this country that 
is licensed to enrich to 10 percent. My understanding is that 
the Pebble Bed Reactor that is under review by your company, if 
it were to be licensed, would require 9 percent enrichment fuel 
source. Is that correct?
    Mr. Skolds. Approximately.
    Mr. Barton. How do we get 9 percent fuel when right now the 
best we could do under current conditions was enrich to 5 
percent?
    Mr. Skolds. Well, regardless of where it comes from, we are 
in favor of multiple sources and competition in that industry. 
I don't have a solution for you right now to say this is how we 
can fix it, but what we are interested in is getting multiple 
sources of fuel suppliers.
    Mr. Barton. Would they be private sector sources or would 
they be government sources from overseas or both?
    Mr. Skolds. I think it would be both.
    Mr. Barton. Okay. And, Mr. Davis, you mentioned your group 
is about to submit, maybe has submitted, a new reactor design 
called the AP1000. If in fact a utility were to order that and 
if in fact it were to be licensed and permitted, once you got 
through the permitting process, how long would it actually take 
to build that reactor?
    Mr. Davis. Once permitted, we are talking about 3 years 
from the time that the first concrete is in place until the 
plant loads fuel. If you include the site preparation time and 
then the startup testing, the total period is 5 years from the 
time that you complete the licensing until it goes into 
operation.
    Mr. Barton. But the construction process, you hope, would 
be 3 years.
    Mr. Davis. It would be 3 years.
    Mr. Barton. What would the construction process of the 
Pebble Bed Reactor be, Mr. Skolds?
    Mr. Skolds. We are studying that right now, but we are 
looking for 24 months, 18 months to 24 months.
    Mr. Barton. Two years. Okay. Mr. Markey is not here, but 
when he was here earlier this morning he asked the Chairman of 
the Nuclear Regulatory Commission a worse-case scenario about a 
total core meltdown, breach of containment, just the absolute 
worst imaginable civilian reactor nuclear accident that we 
could have. My question to you, Mr. Fertel, what is the 
likelihood--assuming we had a total core meltdown, I can 
envision that. I cannot envision the containment building 
failing. What would it take for the containment building to 
fail in the event we had the worse-case core meltdown?
    Mr. Fertel. It is really hard, Mr. Chairman, to come up 
with a scenario that would do that. I mean I heard Mr. Markey's 
question to Chairman Meserve, and you can hypothetically come 
up with scenarios that can't happen or that have the 
probability that is so low that it is more likely you are going 
to hit by an astroid rather than that happening. So I am not 
sure I can answer that with any accuracy.
    Mr. Barton. Now, I have been told----
    Mr. Fertel. The answer would be it is beyond the realm.
    Mr. Barton. [continuing] that the current containment 
structures in this country that the operating reactors are 
encased in could sustain a direct nuclear bomb attack. Is that 
true?
    Mr. Fertel. It could sustain aircraft flying into them and 
other types of things but not a nuclear explosion.
    Mr. Barton. So if we were--if they were to be targeted by 
one of the Russian large thermonuclear warheads----
    Mr. Fertel. You would lose the plant.
    Mr. Barton. The whole plant.
    Mr. Fertel. But then no one would care.
    Mr. Barton. But I mean is that the level at which you have 
to go to see something----
    Mr. Fertel. Pretty significant.
    Mr. Barton. If there were an earthquake, these things are 
designed to withstand----
    Mr. Fertel. Yes, sir.
    Mr. Barton. [continuing] 9.0----
    Mr. Fertel. Earthquakes, tornados, all kinds of horrendous 
types of external events, not nuclear attacks. I think to Mr. 
Markey's question and even to what Ms. Aurilio said, we firmly 
believe Price-Anderson actually does a wonderful job of 
protecting the public, and I am not quite sure how the public 
gets protected if you don't have it. What has been said is that 
you only have $9.5 billion worth of protection. So, ``it is not 
unlimited.'' Well, one, you have set up a process--and I think 
Congress did a good job in policy space--they took a law that 
in 1957 did subsidize the industry. In the 1957, you could only 
get $60 million worth of insurance from firms like ANI. And 
Congress put $500 million of taxpayer money in and said, ``Here 
is a $560 million protection for third-party liability. And if 
it goes beyond that, we, Congress, will think about it.'' But 
500 came from taxpayers. Today, there is $9.5 billion; there is 
zero from taxpayers--zero in the $9.5 billion. If you had an 
accident that went beyond the $9.5 billion, you could decide 
where it comes from. You could say industry should pay more, 
you could say that it should be taxpayer dollars or whatever. 
It is hard to fathom an accident. Your comment on Three Mile 
Island was appropriate. Over 45 years, there has been $190 
million paid in aggregate, for everything. So it is hard to 
fathom.
    The thing that Price-Anderson does that I think is very 
important from a policy space is it doesn't hold Exelon 
responsible for $9.5 billion; it holds a whole industry 
responsible. It creates a pool of shared liability. If you have 
unlimited liability, your liability is very limited; you 
declare bankruptcy. So it is really, I think, a very sound 
public policy, and I think, as John Quattrocchi said, it is 
probably the best third-party liability program in the world.
    Mr. Barton. Last question, Mr. Quattrocchi, and then I will 
give you a chance to comment on that. Assume that--well, let us 
assume that Hoover Dam collapses or Grand Cooley Dam or pick 
any dam. Who pays for the liability if one of these major hydro 
dams were to collapse and there would be a flood as a 
consequence of that?
    Mr. Quattrocchi. Well, to the extent that there is 
insurance available for that kind of an accident, insurance 
would pay.
    Mr. Barton. But the owner of the dam doesn't pay, do they? 
There is not a comparable Price-Anderson--there is no 
requirement that the owner of the dam pays. If a property owner 
had private insurance, that private insurer would pay that 
property damage, but the owner of the dam is not liable, like 
in the case if there were a nuclear accident. Is that correct?
    Mr. Quattrocchi. Well, potentially, the owner of the dam 
could be liable, assuming that there was some sort of 
negligence on the part of the owner of the dam. The fact is, 
though, that in terms of level of insurance----
    Mr. Barton. That is just telling us we have to go vote.
    Mr. Quattrocchi. [continuing] I don't think there is any. 
The insurance that the Price-Anderson system provides far 
surpasses any other insurance that is available for the 
accidents you mentioned. In my testimony, I mention the fact 
that in the case of Bhopal in 1984, there were 4,000 people 
killed in that accident. And what happened----
    Mr. Barton. It is just telling us we have three recorded 
votes instead of one.
    Mr. Quattrocchi. In the case of Bhopal, there was no 
limitation on liability, but the fact is that Union Carbide, 
after years of litigation, sought bankruptcy protection and 
ultimately settled for $470 million. That is roughly $1,000 for 
every person killed and injured. Here is a system that provides 
more than $9 billion of financial protection.
    I have heard a lot today about subsidies. I am not sure 
what subsidies are being provided here. The fact is that in 
return for limitation on liability there is a large, ready 
source of funds available to compensate the public. In our 
minds, as insurers, there is nothing like this system. The 
public has no greater protection under any other system that we 
are aware of and we are aware of most of the liability systems 
in the world.
    Mr. Barton. Okay. The gentleman from Pennsylvania is 
recognized for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman. Ms. Aurilio, you state 
that the goal of the Public Interest Research Group is to shift 
away from dangerous and polluting energies, and I think 
everybody shares the goal of having energy that is safe and 
doesn't pollute. Yet when we look at realistically how we are 
going to meet the energy needs of the country, fossil fuels for 
at least the next 20-some years, at the very least, are going 
to continue to supply 80 percent of our power needs. When we 
had the discussion about greenhouse gases and the Kyoto 
Protocol and we look at the Europeans and their ability to meet 
the protocol because they have largely gone to nuclear, which 
doesn't emit any greenhouse gases.
    So you have two technologies that we look at outside of 
natural gas, coal and nuclear, and the thrust of the Federal 
Government, in partnership with the private sector and 
academia, has been to develop ways in which we can burn coal 
more efficiently and cleaner and to develop nuclear power in 
such a way that it is safe and reliable. And it seems to me 
that we have made great strides in both those areas.
    So you have one energy source, nuclear, that is clean, 
doesn't emit any greenhouse gases, would help us deal with the 
global warming issues that confront the world. And for the past 
40 years, I mean I don't know of any incident where we have 
lost a single life as a result of failure of a nuclear power 
plant. And we, through the Nuclear Regulatory Commission and 
the work that has been done in the Congress, continue to look 
for ways to pre-certify these plants so that they are safe and 
affordable. With our Clean Coal Technology Program and other 
things that we have funded in fossil energy R&D, we continue to 
look for ways to take this abundant natural resource we have, 
coal, and learn how to build it cleaner and cheaper.
    I guess I just have a hard time understanding where your 
group is coming from, where you see the country meeting its 
energy needs for the next 20, 30 years if you don't want to use 
coal and you don't want to use nuclear. How does it get done?
    Ms. Aurilio. Thanks for the question. First of all, you 
mentioned Europe, and last week, there was a great op ed, 
actually, by a gentleman from Deutsche Bank, certainly not a 
green environmentalists or radical person, talking about how 
the Europeans are actually 40 percent more efficient than the 
U.S. So, certainly, we have not at all maximized our ability to 
use energy efficiently, and therefore we are wasting money, 
which is bad for the economy, it is bad for the consumers, and 
it is bad for the environment. So I think we can go a lot 
further in terms of energy efficiency.
    Second, with regard to clean coal, as you know, we don't 
support subsidies for coal. We don't think coal can ever be 
truly clean, and we would be happy to provide you with 
testimony that we had before. And today is a code red day in 
Washington, DC in part because of our dependence on fossil 
energy.
    With regard to nuclear energy, I just have to say we don't 
believe it is safe or clean, and if it is----
    Mr. Doyle. Based on what, though? I mean you say it is not 
safe. What do you base this on? What facts can you point to?
    Ms. Aurilio. We are basing it on the fact that the nuclear 
industry is here today saying that they cannot get insurance to 
fully cover their liability in case of an accident. And, 
therefore, it must be unsafe. And that they will not build new 
nuclear power plants unless they can get a limit on their 
liability. So either it is safe and they can get the insurance 
or it is not.
    Mr. Doyle. So you think coal can never be clean, nuclear 
can never be safe, and that by being more efficient, like the 
Europeans, that we can just meet the energy needs for the next 
20 years. Do you really believe that?
    Ms. Aurilio. As I pointed out in my testimony, DOE's five 
lab studies and the Union of Concerned Scientists show how can 
we meet 60 to 70 percent of future electricity needs through 
energy efficiency and shifting to clean renewable energy. I 
don't think this is all going to happen tomorrow, but, 
certainly, it is time to start shifting and leveling the 
playing field for truly clean energy sources and stop the 
enormous subsidies and unfair practices that have benefited the 
nuclear industry.
    Mr. Doyle. I will tell you, I do agree with you that we 
need to put more money into energy efficiency and conservation. 
I have watched--every budget year, we have this tremendous 
fight where we rob from Peter to pay Paul. We steal money from 
EE or EC to fund FE or vice versa, and I think that is a 
process that has to stop, that we need to fund all of these 
categories to their sufficient levels.
    I am curious, with Price-Anderson, I happen to be--I worked 
in the State capitol for 16 years and was in Harrisburg the day 
they evacuated that place for Three Mile Island. And tell me, 
you didn't mention Three Mile Island in your remarks, and I am 
just curious your concerns about Price-Anderson as it relates 
directly to Three Mile Island. I mean it seems to me that that 
was a pretty good example of a program that worked very well 
for the residents around Three Mile Island, and I think they 
will all tell you that. And why don't--it seems to me this is a 
very consumer-friendly program, one that guaranteed that these 
families got assistance and got it immediately. I would shutter 
to think what that would have looked like under a different 
scenario where they were fighting in court and battling 
companies back and forth. What are your concerns about that, 
and how do you see this as a subsidy?
    Mr. Barton. It is going to have to be your last question, 
because we are about to go vote.
    Ms. Aurilio. Really quickly, we have no problem with strict 
liability for nuclear operators in case of an accident, and we 
have no problem with making sure that funds are readily 
available; in fact, we would argue that according to NRC's 
previous recommendations, the retrospective payment should be 
$20 million not $10 million. What we do have a problem with is 
capping liability, and in the event of a major accident, 
citizens would not be allowed to sue for compensation if there 
were a major accident above $9 billion. That is what we have a 
problem with.
    In terms of the subsidy, I quote two economist studies in 
my testimony who estimate that the value of this, of capping 
the liability to the nuclear industry, and remember that 
contractors are completely indemnified so the subsidy there is 
$9.43 billion or whatever you want to call it in terms of what 
taxpayers might have to pick up. In terms of----
    Mr. Barton. I hate to cut you off, but we have got to vote 
in about 7 minutes. I have got one more questioner, and then 
you all get to go. Okay? There is an incentive here for short 
answers and short questions. I don't want to cut you off, if 
you want to wrap that up, but then I am going to----
    Ms. Aurilio. Just real quick, you can look at my testimony 
as far as what the economists estimate as the subsidy.
    Mr. Doyle. Thank you, Ms. Aurilio.
    Mr. Barton. I am going to recognize Mr. Largent, the vice 
chairman, leave him in charge. When he is finished, he can 
recess the hearing until 1:45. This panel is free to go. When 
we come back, the Chairman of the FERC should be here, and we 
will take his testimony.
    Mr. Largent. Thank you, Mr. Chairman. I just have one 
question for Mr. Quattrocchi. In your statement, you mention 
that the amount of maximum available liability has not been 
increased since 1988. As we look at reauthorizing Price-
Anderson, would it be appropriate to look at increasing that 
$200 million level?
    Mr. Quattrocchi. Yes. And as I mentioned both in my verbal 
testimony and in my written testimony, we think that increasing 
the primary limit, if only to reflect the impact of inflation 
since 1998, makes sense. It would also be consistent with a 
current provision in the act, section 170(t) to be exact, which 
mandates inflationary increases in the second layer. Those are 
put into place at 5-year intervals. So therefore we think an 
increase in the primary layer would be consistent both with 
that and with trying to offset some of the erosionary effects 
of inflation. And as I said, assuming that Price-Anderson is 
renewed essentially in tact, we intend to canvass our members 
to do just that, to increase the primary limit.
    Mr. Largent. Okay. And I think it may have been Mr. Parme 
who mentioned about having a predictable regulatory structure. 
Somebody in the panel said that. Was it Mr. Skolds? Would part 
of that predictability be us reauthorizing Price-Anderson this 
year versus putting it off until next year or something?
    Mr. Skolds. For Exelon, yes.
    Mr. Largent. Thank you. We will dismiss this panel and 
recall the rest of the witnesses at 1:45. Thank you.
    [Brief recess.]
    Mr. Barton. The subcommittee will come to order. We want to 
reconvene our hearing on hydro nuclear power, and we have now 
before us the distinguished Chairman of the Federal Energy 
Regulatory Commission, the Honorable Curt Hebert, Jr. He is 
accompanied by Mr. Mark Robinson, who is the Director of the 
Office of Energy Projects at FERC, and Ms. Kristina Nygaard, 
who is the Associate Counsel for Energy Projects in the Office 
of the General Counsel.
    Chairman Hebert, you have been before the subcommittee 
before. You are always welcome. Your written testimony is in 
the record in its entirety. I would ask that you summarize it 
in 7 minutes. And then if either of your associates wishes to 
say something, and they will be recognized, and then we will 
have some questions for you.

STATEMENT OF HON. CURT L. HEBERT, JR., CHAIRMAN, FEDERAL ENERGY 
    REGULATORY COMMISSION; ACCOMPANIED BY J. MARK ROBINSON, 
   DIRECTOR, OFFICE OF ENERGY PROJECTS AND KRISTINA NYGAARD, 
   ASSOCIATE COUNSEL FOR ENERGY PROJECTS, OFFICE OF GENERAL 
                            COUNSEL

    Mr. Hebert. Thank you, Mr. Chairman. Glad to be before you 
again. Always glad to come and share with you. I would like to, 
in my opening statement, provide the opportunity for Mark 
Robinson and Kris Nygaard, as well, to join me, if there are 
answers that they would like to add. Since they are experts in 
leading our agency in the right direction hydro power 
licensing, I would certainly invite both of them to add to 
anything that I may say, for your benefit.
    The Commission currently regulates over 1,600 hydropower 
projects at over 2,000 dams, pursuant to Part 1 of the Federal 
Power Act. These projects represent more than half of the 
Nation's approximately 100 gigawatts of hydropower capacity and 
over 5 percent of all electric power generated in the United 
States. Hydropower is an essential part of the Nation's energy 
mix and offers the benefits of an emission-free renewable 
energy resource.
    The Commission's responsibility in issuing hydropower 
licensing under the Federal Power Act is to strike an 
appropriate balance among the many competing power and non-
power interests, as required by the public interest standards 
of sections 4(e) and 10(a) of the Federal Power Act. However, 
various statutory requirements, as interpreted by the courts, 
give other agencies a powerful role in licensing cases and 
significantly affect the Commission's ability to control the 
timing and content of licenses.
    The Commission currently uses two different processes in 
relicensing: the traditional process and the alternative 
process. Experience to date demonstrates that the alternative 
procedures can reduce the length, cost and contentiousness of 
relicensing proceedings. The Commission is driven within the 
constraints of the Federal Power Act to make the hydropower 
licensing process less time-consuming and costly.
    Energy shortfalls in the West and especially in California 
have given impetus to the need for further improving the 
licensing process. Pursuant to section 603 of the Energy Act of 
2000, the Commission staff, on May 8, 2001, submitted to the 
Congress a report on the cost and the time to obtain a license, 
including recommendations, which I endorse, for legislative, 
procedural and policy changes to reduce those costs and time.
    The legislative recommendations include, one, establish a 
one-stop shop at the Commission for all Federal authorizations. 
Federal agencies with mandatory conditioning authority would 
retain that authority subject to a statutory reservation of 
Commission authority to reject or modify the conditions, based 
on inconsistency with the Commission's overall public interest 
determination.
    If this recommendation is not adopted, then, second, 
require agencies to better support their conditions. This would 
require resource agencies to consider the full panoply of 
public interest and support their conditions on the record and 
provide a clear administrative appeal process.
    Third, focus Clean Water Act authority. Limit water quality 
certification to physical and chemical water quality parameters 
related to the hydropower facility. Provide a statutory 
definition of fishway. The proposed definition recently issued 
by Interior and Commerce is overbroad and would allow these 
agencies to dictate virtually all aspects of a project. Remit 
annual charges for other Federal agency Federal Power Act Part 
1 costs directly to agencies, specifying that they are to be 
used for implementing Part 1.
    The procedural and policy recommendations include, first, 
require license applicants to submit during pre-filing 
consultation a status report focusing on study requests to 
enable staff to determine if pre-filing involvement is 
warranted because of significant cost and time delay. Is there 
need to agree upon and perform additional environmental 
resource studies? Allow agencies to revise their 
recommendations and conditions only with Commission concurrence 
and in a reasonable period after the first or only 
environmental document. The last filed recommendations and 
conditions are a source of delay.
    Require applicants to conduct pre-filing consultation with 
the public and non-governmental organizations, as well as 
agencies and tribes. Allow applicants to maintain public 
information electronically rather than in hard copy at a 
specific location. Continue to promote alternative licensing 
processes and settlements through more staff outreach and 
involvement. Issue both a draft and final environmental 
assessment on a more limited basis. Issue one NEPA scoping 
document and accommodate any comments on the scoping document 
and the environmental analysis document. And increase the 
standard new license term to 50 years, in most cases, in 
recognition of adaptive management.
    Mr. Chairman, members of the subcommittee, those are my 
recommendations. That is the direction that I believe the FERC 
and the United States should move in. I look forward to your 
questions and your comments.
    [The prepared statement of Hon. Curt Hebert, Jr. follows:]
   Prepared Statement of Curt Hebert, Jr., Chairman, Federal Energy 
                         Regulatory Commission
    Mr. Chairman and Members of the Subcommittee: My name is Curt 
Hebert, Jr., and I am Chairman of the Federal Energy Regulatory 
Commission. I appreciate the opportunity to appear before you to 
discuss the Commission's hydropower licensing program.
    My testimony today will provide a brief overview of the hydropower 
licensing program, and some of the challenges it faces. I will then 
focus on the recommendations for improving the hydroelectric licensing 
process made by Commission staff in a report submitted to Congress on 
May 8, 2001, as required by Section 603 of the Energy Act of 2000 (the 
603 Report). I fully endorse staff's recommendations.
1. The Commission's Licensing Program
    The Commission currently regulates over 1,600 hydropower projects 
at over 2,000 dams pursuant to Part I of the Federal Power Act (FPA). 
Non-federal hydropower projects are required to obtain Commission 
authorization if they are on lands or waters subject to Congress' 
authority. Those projects represent more than half of the Nation's 
approximately 100 gigawatts of hydroelectric capacity and over 5 
percent of all electric power generated in the United States. 
Hydropower is an essential part of the Nation's energy mix and offers 
the benefits of an emission-free, renewable energy source.
    The Commission's hydropower work generally falls into three 
categories of activities. First, the Commission licenses and relicenses 
projects. Relicensing involves projects that originally were licensed 
30 to 50 years ago. The Commission's second role is to manage 
hydropower projects during their license term. This post-licensing 
workload has grown in significance as new licenses are issued and as 
environmental standards become more demanding. Finally, the Commission 
oversees the safety of licensed hydropower dams. This program is widely 
recognized for its leadership in dam safety.
    The Commission is in the second year of a 10-year period (CY2000 to 
CY2010) during which 218 applications for hydropower relicenses are due 
to be filed. The Commission has already received 84 of these relicense 
applications. This group of projects has a combined capacity of 
approximately 22,000 megawatts (MW), or 20 percent of the Nation's 
installed hydroelectric capacity. Approximately forty percent of these 
218 projects will have filed their relicense applications by the 
beginning of 2002.
    Over the last three decades, the enactment of numerous 
environmental, land use, and other laws, and new interpretations of 
certain provisions of the FPA, have significantly affected the 
Commission's ability to control the timing of licensing and the 
conditions of a license. Under the standards of the FPA, projects can 
be authorized if, in the Commission's judgment, they are ``best adapted 
to a comprehensive plan'' for improving or developing a waterway for 
beneficial public purposes, including power generation, irrigation, 
flood control, navigation, fish and wildlife, municipal water supply, 
and recreation. The Electric Consumers Protection Act of 1986 (ECPA) 
amended the FPA to require the Commission to give ``equal 
consideration'' to developmental and non-developmental values.
    While the Commission's responsibility under the FPA is to strike an 
appropriate balance among the many competing power and non-power 
interests, various statutory requirements give other agencies a 
powerful role in the licensing process. Among others, those 
requirements include:

 Section 4(e) of the FPA, which authorizes federal resource 
        agencies such as the Departments of Agriculture and the 
        Interior to impose mandatory conditions on projects located on 
        Federal reservations they supervise.
 Section 18 of the FPA, which authorizes the Departments of 
        Commerce and the Interior to impose mandatory fishway 
        prescriptions.
 Section 10(j) of the FPA, which in essence establishes a 
        presumption for inclusion of Federal and State fish and 
        wildlife agencies' recommendations to protect fish and 
        wildlife.
 Section 401 of the Clean Water Act, which authorizes States to 
        impose mandatory conditions as part of the State water quality 
        certification process.
 The Coastal Zone Management Act, which requires that projects 
        affecting coastal resources be consistent with State management 
        programs.
 The Endangered Species Act, which directs the Departments of 
        the Interior and Commerce to propose measures to protect 
        threatened and endangered species.
 The National Historic Preservation Act, which requires 
        Commission consultation with Federal and State authorities to 
        protect historic sites.
    There have been three important court decisions concerning the 
roles of the Commission and the resource agencies under these statutes.

 In PUD No. 1 of Jefferson County v. Washington Department of 
        Ecology, 511 U.S. 700 (1994) (Jefferson County), the Supreme 
        Court held that a State acting under the CWA could regulate not 
        only water quality (such as the physical and chemical 
        composition of the water), but water quantity (that is, the 
        amount of water released by a project), as well as State-
        designated water uses (fishing, boating, etc.). It is important 
        to note that the Court specifically acknowledged that its 
        decision did not address the interaction of the CWA and the 
        FPA, since no license had been issued for the project in 
        question. Its decision therefore did not discuss which 
        regulatory scheme would prevail in the event of a direct and 
        critical conflict.
 In American Rivers [I] v. FERC, 129 F.3d 99 (2nd Cir. 1997), 
        the Court held that the Commission lacked authority to 
        determine whether conditions submitted by State agencies 
        pursuant to Section 401 of the Clean Water Act were beyond the 
        scope of that section. The court held that challenges to such 
        conditions were to be resolved instead by the courts.
 Finally, in American Rivers [II] v. FERC, 187 F.3d 1007 (9th 
        Cir 1999), the Court ruled that the Commission lacked authority 
        in individual cases to determine whether prescriptions 
        submitted under color of Section 18 of the FPA were in fact 
        fishways. As in the Second Circuit case, the Court held that 
        challenges to a fishway prescription were to be resolved by the 
        courts, not the Commission. (On December 22, 2000, the 
        Departments of the Interior and Commerce issued a joint Notice 
        of Proposed Interagency Policy on the Prescription of Fishways. 
        The Commission staff filed comments noting that the 
        unilaterally-developed policy would define the term ``fishway'' 
        in an extremely broad manner that in staff's view is 
        inconsistent with the definition of that term enacted by 
        Congress in the Energy Policy Act of 1992).
    As a result of these judicial rulings, if the Commission were to 
conclude that one or more mandatory conditions would render a project 
inconsistent with the public interest, its only recourse would be to 
deny the license application. Not only is this a blunt instrument, but 
in most relicense proceedings denial is not a viable alternative.
2. The Commission's Licensing Process
    The Commission currently uses two different processes in licensing: 
the ``traditional'' process and the ``alternative'' process. Under the 
alternative process, pre-filing consultation and environmental review 
can be integrated and proceed concurrently, in a collaborative manner, 
thereby dramatically shortening the processing time for an application.
    Although the Commission staff invests substantial time and effort 
on alternative licensing processes during the pre-filing stage, it is 
clear that the effort produces savings in processing time and 
efficiency once applications are filed with the Commission. After an 
application is filed, the median time for the Commission to process the 
application and issue a new license order is about 16 months. An 
example is the Upper Menominee River Basin Projects, eight existing 
hydroelectric developments located in Michigan and Wisconsin. New 
license were issued January 12, 2001, about 15 months after the 
applications were filed.
    Based on discussions Commission staff has had with the industry, we 
expect that about one-third of the next wave of relicense applicants 
will pursue the alternative process route.
    The Commission has worked to improve the licensing process by 
making its regulations more clear and specific, enhancing opportunities 
for stakeholder participation, and providing flexibility to license 
applicants and others to design collaborative efforts that meet the 
needs of all participants. In addition, Commission staff routinely 
holds ``outreach'' meetings throughout the country to inform all 
stakeholders about the licensing process, and has taken an active role 
in facilitating settlements and introducing alternative dispute 
resolution procedures. The staff has also participated in Interagency 
training on hydropower licensing, and in the Electric Power Research 
Institute's National Review Group, which shares ``lessons learned'' in 
the hydropower licensing process. The details of these efforts are 
described in Commission staff's 603 Report.
3. Costs and Times for Obtaining a License
    The following discussion is based on information contained in the 
603 Report. The staff found that, using the traditional process, it 
takes about 32 months in pre-filing consultation and study in addition 
to 47 months in post-filing processing to license a project. In the 
alternative licensing process, prefiling consultation and study is more 
intense and takes about 40 months, but the post-filing process takes 
only about 16 months. Thus, on average the total time spent on an 
application is 23 months shorter with the alternative licensing process 
than with the traditional process.
    For the traditional process, the average cost of application 
preparation is $109/kW, and the cost for protection, mitigation, and 
enhancement measures is $264/kW. In contrast, for the alternative 
licensing process, the average costs for application preparation and 
protection, mitigation and enhancement measures are $39/kW and $58/kW, 
respectively--substantially lower than for the traditional process.
4. Recommendations to Reduce the Cost and Time of Licensing
    My colleagues and I are aware of the need to complete the 
relicensing process as expeditiously as possible while also protecting 
the environment. Many have said that the licensing process takes too 
long and costs too much. Much of time and resources spent are 
unavoidable. But the recent energy shortfalls in the West and 
especially in California, have given more impetus to the need not just 
to pursue marginal efficiencies but for a fundamental restructuring of 
the licensing process.
    The 603 Report identified the primary sources of cost and delay in 
the licensing process and proposed time-saving changes to certain 
Commission policies and procedures, but also identified, as Congress 
requested, legislative changes needed to effectuate any significant 
reduction in the time and cost of relicensing.
    In the 603 Report, the staff made the following recommendations, 
which I endorse:
                     a. legislative recommendations
1. Establish one-stop shopping at the Commission for all federal 
        authorizations.
    Federal agencies with mandatory conditioning authority would retain 
that authority, subject to a statutory reservation of Commission 
authority to reject or modify the conditions based on inconsistency 
with the Commission's overall public interest determination.
    The license would also be the only federal authorization required 
to operate the project, e.g., special use authorizations for projects 
on Forest Service lands and similar authorizations would be eliminated. 
A single administrative process would be established by the Commission 
to address all Federal agency issues in a licensing case, with 
schedules and deadlines established by the Commission, and with one 
administrative record compiled by the Commission in consultation with 
the other Federal agencies. The Commission would prepare a single NEPA 
document. The Federal agencies would not be required to adopt the 
Commission's conclusions, but would have to provide for the record 
their own analysis and conclusions based on the evidentiary record. The 
agencies' analyses and conclusions would be included in the record of 
the Commission's order acting on the application, and judicial review 
would be obtained by seeking rehearing of the Commission's order.
    If this recommendation is not enacted, then the following 
recommendation might reduce some of the high costs resulting from 
mandatory conditions:
2. Require agencies to better support their conditions (alternative to 
        A.1).
    If the Commission is not given authority to balance all the 
developmental and environmental values and make a decision in the 
public interest, and, if agencies with conditioning authority conduct 
separate proceedings, an alternative would be to require resource 
agencies to consider the full panoply of public interest values, 
support their conditions on the record, and provide a clear 
administrative appeal process. Supporting Findings for A1. And A.2
    The 603 Report showed that the costs for protection, mitigation, 
and enhancement measures for traditional licenses containing Section 
4(e) and 18 mandatory conditions ($590/kW) were 2.7 times the cost for 
licenses not containing those conditions ($218/kW). The Commission 
staff does not routinely highlight disagreements with mandatory 
conditions; however, in the 12 percent of cases where staff did so, 
staff found that those conditions were substantially more expensive 
than conditions that staff thought adequate to protect environmental 
resources. Alternative Recommendation A.2. might reduce the cost of 
some mandatory conditions.
3. Focus Clean Water Act authority.
    At least for hydropower projects, limit water quality certification 
to physical and chemical water quality parameters.
Supporting Findings
    Water quality certification requirements can be costly and the time 
to obtain certification is a substantial source of delay. There has 
clearly been an increase in the number and variety of certification 
conditions since the Jefferson County and American Rivers I decisions. 
For comparison, staff reviewed licenses issued in 1992, before these 
decisions were issued, and in 1999, two years after American Rivers.
    Staff reviewed the number and kinds of water quality certification 
conditions in each license. These were categorized as pertaining to the 
physical characteristics of the water (temperature, dissolved oxygen, 
clarity, etc.), designated uses of the water body (e.g., fishing or 
swimming, and therefore fish passage and instream flows), or 
administrative (state approvals, reopener clauses, etc.). The 603 
Report documented a substantial increase in the number of certification 
conditions and a more than doubling of the number of conditions related 
to designated uses. Of equal concern, of 129 currently pending 
licensing cases, 52 (25 percent) are currently held up by certification 
issues. Clearly, water quality certification is a substantial source of 
cost and delay.
4. Provide a statutory definition of fishway.
Supporting Findings
    Since the American Rivers II case (1999), the Commission lacks 
authority to decide if a prescription is a ``fishway.'' If the 
Commission concludes that a fishway prescription is drafted so broadly 
as to render the project inconsistent with the public interest, its 
only recourse is to deny the license.
5. Remit annual charges for other federal agency FPA Part I costs 
        directly to agencies, specifying that it is to be used for 
        implementing Part I.
Supporting Findings
    Numerous agency, tribe, and non-governmental organizations 
supported amending the FPA to permit the Commission to remit directly 
to other Federal agencies with FPA Part I responsibilities the portion 
of administrative annual charges attributable to their costs, and to 
specify that such remittances be used for FPA Part I purposes. By 
ensuring that Federal agencies recover appropriated funds spent for the 
licensing process, such legislation would support the federal agencies' 
participation in that process.
                    b. regulatory and policy changes
1. Require license applicants to submit during prefiling consultation a 
        status report focusing on study requests, to enable Staff to 
        determine if pre-filing involvement is warranted.
Supporting Findings
    The median time from filing to issuance of the notice that a 
license application is ready for environmental assessment is 17.4 
months for the traditional process, and only 2.1 months for the 
alternative licensing process. The difference can be attributed to the 
high number of additional study requests under the traditional process. 
Resolving study disputes pre-filing would save about 15.3 months in 
total processing time. About 25 percent of application preparation 
costs are incurred post-filing. These costs largely involve study needs 
that were not resolved pre-filing.
2. Agencies would be allowed to revise their recommendations and 
        conditions only with the agreement of the Commission, and in a 
        reasonable period after the first (or only) environmental 
        document. Eliminate the option for Federal agencies to file by 
        the deadline only preliminary terms and conditions and a 
        schedule for filing final conditions.
Supporting Findings
    In many of the cases pending over five years as of 1997, delays in 
processing are caused by agencies filing their 10(j), Section 18, and 
4(e) conditions filed late in the process (average one to six months 
delay on initial conditions, and up to 17 months for final conditions).
3. Applicants would be required to conduct pre-filing consultation with 
        the public and non-governmental organizations. Currently, 
        applicants are required to consult only with agencies and 
        tribes.
Supporting Findings
    Staff expects that greater involvement of interested entities up-
front would result in fewer delays from new issues, and resultant new 
study requests.
4. Allow applicants to maintain public information electronically 
        rather than in hard copy.
Supporting Findings
    The Commission's rules currently require applicants for new 
licenses to maintain on file and available for public inspection 
certain data regarding the existing project facilities and operation. 
Licensees, who maintain that little use is made of physical libraries, 
propose instead that the Commission give them the option to put the 
data on a web site, with hard copy on request at no cost.
5. Continue to promote alternative licensing processes and settlements, 
        through more staff outreach and involvement.
Supporting Findings
    The alternative licensing process results in a median process time 
that is 23 months less than traditional license process times. Average 
costs of application preparation and protection, mitigation and 
enhancement measures are significantly less for the alternative 
licensing process as compared to the traditional license process. 
Substantially more settlements and substantially less rehearings result 
from the alternative licensing process as compared to the traditional 
license process.
6. Issue a draft Environmental Assessment (EA) before preparing the 
        final EA only if necessary. Comments on the final EA would be 
        handled in the merits order. Staff would retain discretion to 
        do a draft or supplemental EA.
Supporting Findings
    Staff conservatively estimated that about one-third of the average 
time between the Draft EA and the Final EA--that is, about two months--
would be saved if no Draft EA were prepared, and that the Commission 
would save about $24,000 for the traditional licensing process and 
$8,000 for the alternative licensing process.
7. Issue a single NEPA scoping document, and instead would accommodate 
        any comments on the scoping document in its preparation of the 
        NEPA document.
Supporting Findings
    Staff conservatively estimated that about one-third of the time for 
preparing a second NEPA scoping document--that is, about two months--
would be saved, and that the Commission would save about $7,500.
8. Increase the standard new license term to 50 years, absent 
        compelling reasons to do otherwise. This is consistent with the 
        ``living license'' approach and expanded use of the 
        Commission's reserved authority to amend the license to address 
        new issues.Summary Findings
    A relatively high portion of licensing costs, $85/kW, is for 
application preparation costs, as compared to $212 for protection, 
mitigation, and enhancement measures. For small projects, application 
costs are about half of total licensing costs. This proposal would 
reduce licensee costs by decreasing the frequency of the application 
preparation costs and by providing more time to amortize the costs of 
protection, mitigation, and enhancement measures.
5. Conclusion
    The Commission is well aware of the importance of hydropower, and 
of the significant role we play in licensing and overseeing crucial 
hydropower projects. We also recognize that the hydropower licensing 
process is often too long and too costly. The Commission and its staff 
will do everything we can to improve that process. At the same time, we 
are prepared to work with Congress and other agencies to craft 
legislative solutions. Together, we can develop the efficient, 
comprehensive licensing process that our Nation's energy needs demand.
    Thank you. I will be pleased to answer any questions you may have.

    Mr. Barton. Do either of your associates wish to say 
anything verbally? Okay. The Chair would recognize himself for 
the first 5 minute question rounds.
    Mr. Chairman, you talk in your written testimony, and you 
spoke to it somewhat in your verbal statement, about a one-stop 
shop. Does that mean, in your mind, that the FERC would be the 
shop where it all stops or would it be another agency? Could 
you elaborate on that a little bit?
    Mr. Hebert. I do think that FERC provides a great 
opportunity to be the one-stop shop, and the reason for that is 
that we do have to balance and maintain the public interest. So 
many and the resource agencies don't have to balance. They can 
be single-source type agencies and single-interest agencies 
that are not required to balance, and we are. So, therefore, I 
think that is a reason that FERC would naturally be the one-
stop shop.
    Mr. Barton. Okay. We have to get the clock set. Put me on 
about 4 minutes. I don't think he talked for 2 minutes. I don't 
want to cheat my own self here. There you go. All right.
    Your testimony is silent on the potential for future hydro 
sites. Does your agency have any information about future 
potential, either large or small, hydro sites in this country 
where we might get additional hydroelectric power?
    Mr. Hebert. Mr. Chairman, I would certainly invite the 
experts to my right and left to comment on that. I would tell 
you specifically I am not aware of any substantial projects in 
the United States of America. It would be my thought, based on 
what I know now, that if there is development as far as 
increasing hydro capacity through new structures, most of that, 
if in North America, would be somewhere in Canada and not in 
the United States.
    Mr. Barton. Well, I have got information--it is dated; it 
is over a year old--that there are at least 2,000 potential 
small hydro sites. Would Mr. Robinson or Ms. Nygaard----
    Mr. Hebert. There are some small ones, I know.
    Mr. Barton. Do either one of you wish to comment on that?
    Mr. Robinson. Certainly. There are at least that number of 
sites that are available. However, we haven't seen interest in 
new hydropower since about 1987 or 1988. A number of 
congressionally authorized sites expired around that time, but 
since then, we have been basically in the business of 
relicensing existing projects.
    Mr. Barton. Right. But if we could do an interconnection 
standard and some of the distributed generation issues in a 
larger electric restructuring bill, there is some thought that 
small hydro would really conceivably play a noticeable part in 
new generation. Small is 5 megawatts or less, perhaps 10 
megawatts or less.
    Mr. Robinson. I think, certainly, as the economics change, 
those projects would become viable, and we might see a rebirth 
of small hydropower project and applications come into the 
Commission.
    Mr. Barton. Okay. This is off the subject, but I want to 
ask--I don't get the Chairman before me publicly that often. 
Later this afternoon on the floor, we are going to have a 
Congressman Kucinich of Ohio amendment that would restrict any 
funding to the FERC for setting market-based wholesale electric 
rates. If you had the opportunity to go to the floor and debate 
that, Chairman, would you oppose or support the Kucinich 
amendment? And, hopefully, you will say you will oppose it, and 
you would give me one or two good bullet points why I should 
oppose it.
    Mr. Hebert. May I start out by saying we do that for free.
    Mr. Barton. Okay.
    Mr. Hebert. But if that is not good enough, I certainly 
don't know and understand the intent behind the legislation. I 
would like to know more about that to give you a better answer. 
But I would tell you I think that the Commission needs the full 
range of its entire tool shed in dealing with competition in 
making certain that Americans have choice and that that choice 
develops along with adequate supply and adequate 
infrastructure. And that is best provided, I believe, by 
incentives. What are those incentives, and what are those 
opportunities? Part of it is market-based rates.
    The FERC is now exhibiting, I believe, a strong ability to 
be able to bring markets in that seem dysfunctional. We have 
done that, we are continuing to do that. I don't see the alarm 
that there was perhaps four and 5 months ago in dealing with 
these issues. And I do think the market-based rate authority is 
one of the tools that is necessary for FERC to have.
    Mr. Barton. Okay. Let me ask one last hydro question, and 
then I will yield to Mr. Dingell for questions. Is there any 
interagency working group right in the Bush Administration that 
is looking at hydroelectric reform as an option?
    Mr. Hebert. Yes. The IHC is a follow-up to the ITF.
    Mr. Barton. What is IHC?
    Mr. Hebert. Mark Robinson can tell you more about it, but 
that is the only development I am aware of.
    Mr. Barton. Okay.
    Mr. Robinson. The interagency administrative group that 
existed up until December 31, 2000 was the Interagency Task 
Force, the ITF. One of the recommendation of the ITF was that a 
follow-up group be formed, the Interagency Hydropower 
Committee, the IHC. That is just now kicking off. We are trying 
to have our first meeting of that group during July.
    Mr. Barton. And do you know, off the top of your head, 
which cabinet agencies are involved in that?
    Mr. Robinson. Yes. They are the Department of Commerce, the 
Department of Agriculture, the Department of the Interior and 
ourselves as the four primary agencies that would conduct this 
follow-up group.
    Mr. Barton. Okay. And do you know--is one agency the lead 
agency in coordinating the group?
    Mr. Robinson. Well, we are taking the initiative to try to 
get it started.
    Mr. Barton. We being the FERC.
    Mr. Robinson. Yes, the FERC. But the idea behind this is 
that each of those agencies would chair a session each quarter. 
So we would meet four times a year, approximately.
    Mr. Barton. Well, we are going to draft a hydro reform 
title to a bill next week. So if you could encourage your 
working group, even though it hasn't met yet, to prepare its 
conclusions and get them to us at the staff level next week so 
we could review them for incorporation into our bill, we 
would--whatever input you can give us at the staff level or 
even at the member level, if we need to do that, by telephone, 
when we come back week after next, we hope to mark up a bill 
that will include a hydro title.
    Mr. Robinson. Certainly.
    Mr. Barton. Okay. The Chair would recognize Mr. Dingell. 
Mr. Dingell wishes to recognize Mr. Boucher. Mr. Boucher is 
then recognized for 5 minutes.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. And 
Commissioner Hebert, welcome. We are delighted to have you here 
this afternoon.
    I have several questions concerning the recent report that 
was issued through the Federal Energy Regulatory Commission. 
Section 603 of the Energy Act of 2001 states, and I will quote 
this, ``That the Commission shall, in consultation with other 
appropriate agencies, immediately undertake a comprehensive 
review of policies, procedures and regulations for the 
licensing of hydroelectric projects.''
    The report that the Commission issued, pursuant to that 
direction in May of 2000, is characterized as a staff report. 
And so my first question to you is this: Is that report a 
product of the staff or is this really the Commission's report?
    Mr. Hebert. It is certainly a staff report. It is what came 
from the staff level and worked its way up to the Commission. 
It is something that I endorse as what the position of the 
Commission should be.
    Mr. Boucher. Did the other members of the Commission have 
an opportunity to review that report?
    Mr. Hebert. Yes. The report has been provided to all 
Commissioners, so I am assuming it has been reviewed. As you 
know now, we have two new Commissioners. I would doubt that 
they have had the opportunity to go through it yet. I certainly 
don't want to speak for them. The other two Commissioners that 
have been there the same time I have been, Commissioner 
Breathitt, Commissioner Massey have had an opportunity to look 
at it. I can tell you, and certainly in their testimony, they 
make it clear that they have differences of opinions in which 
direction we should go.
    Mr. Boucher. And so it is fair to say that the other two 
members of the Commission who were members of the Commission at 
the time that this report was issued do have some differences 
of opinion with respect to certain of the recommendations; is 
that correct?
    Mr. Hebert. That is correct.
    Mr. Boucher. Has there been an opportunity for those other 
Commissioners, in some formal mechanism, to express their 
disagreements and to indicate what those disagreements are?
    Mr. Hebert. They have not yet. They are being briefed now. 
As you know, there have been many issues before the Commission 
to which we have paid great attention. This report has not been 
placed on the back burner, but there have been other things 
that have been more pressing. But the new Commissioners, 
certainly, are going to be briefed on it quickly.
    Mr. Boucher. Well, I would be happy to know that the new 
Commissioners are going to be briefed, but my question relates 
to the numbers of the Commission who were there at the time 
this report was issued. So Commissioner Massey and Commissioner 
Breathitt and I believe you answer was that they do have some 
differences with these recommendations; is that correct?
    Mr. Hebert. That is correct.
    Mr. Boucher. And has there any been mechanism for the two 
of them to express in a formal way what their differences with 
these recommendations are?
    Mr. Hebert. They have their testimony that they provided to 
you today. We certainly continue to have conversations. As you 
know, we are prohibited from getting together as a quorum, but 
we can get together on a basis of one to one, and we continue 
to do that. But as for any formal document from my office to 
them requesting that they share with me any differences, that 
has not been done.
    Mr. Boucher. All right. And this report was not actually 
adopted by the Commission; is that correct?
    Mr. Hebert. That is correct.
    Mr. Boucher. It does bear your endorsement, but it does not 
bear the endorsement of the Federal Energy Regulatory 
Commission; is that correct?
    Mr. Hebert. That is accurate.
    Mr. Boucher. Now, do you believe that the process you 
undertook to submit this report conforms with the statutory 
requirement that the Commission issue a report?
    Mr. Hebert. Do I believe that it conforms to that?
    Mr. Boucher. Yes. Do you believe it conforms with the 
statutory requirement that the Commission issue the report?
    Mr. Hebert. Well, it is the Commission's report through the 
staff. I guess if you are asking me has it been voted up or 
down by the Commission, no, it has not. If you believe that is 
the intent of the act, then I will certainly look at that.
    Mr. Boucher. Okay. Well, let me move on to another matter. 
The statute also requires consultation with other appropriate 
agencies. That was certainly the intent of Congress. That was 
made clear at the time this provision was adopted. And my 
second question to you second question to you is, what 
consultation did the Commission undertake with other Federal 
agencies as these recommendations were adopted?
    Mr. Hebert. The Commission, through its staff, communicated 
on a pretty regular basis with the other agencies. Let me allow 
either Mr. Robinson or Ms. Nygaard to tell you exactly what 
they did to give you a better answer.
    Mr. Boucher. Just tell me which agencies you consulted 
with.
    Mr. Robinson. Just about every agency that we could think 
of. Departments of the Interior, Agriculture, Commerce----
    Mr. Boucher. Agencies with environmental responsibilities?
    Mr. Robinson. I'm sorry?
    Mr. Boucher. Agencies with environmental responsibilities?
    Mr. Robinson. Absolutely.
    Mr. Boucher. All right.
    Mr. Robinson. And we started this process by calling all of 
those agencies with environmental responsibilities together to 
talk about how we were going to launch this effort and what 
studies we were going to do and how we were going to do them.
    Mr. Boucher. Did those agencies have an opportunity to take 
part in the drafting of these recommendations?
    Mr. Robinson. No, they did not.
    Mr. Boucher. Did they have an opportunity to comment on the 
recommendations after you had drafted them?
    Mr. Robinson. There was no opportunity to comment on the 
draft document, and thus no opportunity----
    Mr. Boucher. All right. It doesn't sound like very 
comprehensive consultation to me. Well, thank you, gentlemen. 
Mr. Chairman, my time has expired, and I yield back.
    Mr. Barton. Thank you. Does Mr. Dingell wish to be 
recognized now or does he wish to recognize Ms. McCarthy?
    Mr. Dingell. Thank you, Mr. Chairman. I appreciate that 
courtesy. Mr. Chairman Hebert, in appearing before the 
committee last year, your predecessor announced that the 
Commission had succeeded in implementing environmental 
improvements while maintaining the viability of the hydropower 
industry, and cited a number of successful administrative 
efforts to expedite the relicensing process and even to give 
examples of success stories.
    Many of the proposed changes you have suggested, in my 
view, would harm the environment without necessarily 
contributing much to the continued viability of the hydropower 
industry. Commissioner Breathitt seems to allude to this in her 
written testimony where she rejects the idea of putting FERC in 
charge of all aspects of relicensing, including environmental 
protection, under the concept of one-stop shopping.
    You noted in response to questions from Mr. Boucher that 
you have had consultations but have not gotten approval or 
assent or further communications or comment from any of the 
agencies with whom you had consulted; is that correct?
    Mr. Hebert. That is correct.
    Mr. Dingell. Now, how many licenses have been surrendered 
since FERC began the relicensing in the projects class of 1993? 
Have any been surrendered at all?
    Mr. Hebert. Surrendered?
    Mr. Dingell. Have any licenses been surrendered since FERC 
began relicensing projects in the class of 1993?
    Mr. Hebert. Yes.
    Mr. Dingell. How many?
    Mr. Hebert. I can provide that. A handful, anyway.
    Mr. Dingell. Please submit a list of the projects where the 
licenses have been surrendered, what they were, and why they 
were surrendered.
    Mr. Hebert. Glad to.
    [The response appears at the end of the hearing.]
    Mr. Dingell. Now, under current law, a project whose 
license expires before a new one is issued is allowed to 
continue to operate under an annual license; is that not 
correct?
    Mr. Hebert. That is correct.
    Mr. Dingell. Are State and Federal resource agencies and 
other stakeholders consulted or provided with official period 
for comment on these annual licenses, yes or no?
    Mr. Hebert. No, they are not.
    Mr. Dingell. Does FERC apply conditions to these annual 
licenses which will provide interim resource protections until 
a new license is issued, yes or no?
    Mr. Hebert. By law, they have to be identical to the 
existing license.
    Mr. Dingell. But that means that you apply no conditions 
for the protection of environmental or fish and wildlife 
values, even if the law has been changed since the original 
license was written; is that correct? So you just relicense--
you just extend the license when you get an application that 
you can't act upon, the result of which is that the relicensing 
simply extends the original terms of the license and that no 
conditions are imposed, either for protection of fish or 
wildlife or for concern about environmental matters; is that 
right?
    Mr. Hebert. I would respectfully phrase it differently.
    Mr. Dingell. Well, how would you phrase it? I think I have 
phrased it simply enough that it doesn't need much change.
    Mr. Hebert. No, sir. I was not speaking to the 
simplification of it. I was just suggesting that in fact it is 
the goal of our agency, the FERC, to issue licenses that will 
produce the maximum amount of power at the cheapest possible 
cost. But at the same time, we are fully protecting the 
environment, and we are the only agency, the FERC, that is 
directed to provide such a balance.
    Mr. Dingell. Well, do you apply the Northwest Power Act or 
any of the provisions with regard to fish and wildlife 
protection or endangered protection in the relicensing of these 
projects on which you give just a 1-year extension?
    Mr. Hebert. I am going to let Ms. Nygaard go into that 
further for you, if you don't mind.
    Mr. Dingell. The answer should be a simple yes or no.
    Mr. Hebert. But what I would love to share with you----
    Mr. Dingell. You do or you don't. Which is the case.
    Mr. Hebert. We do look at the Clean Water Act and consider 
it, the Endangered Species Act, the National Historical 
Preservation Act.
    Mr. Dingell. What conditions do you impose upon a 
relicensing? You told me you simply duplicate the preexisting 
license for a period of 1 year.
    Mr. Barton. Let us let Ms. Nygaard. I think she actually 
wants to be informative to Mr. Dingell. Did you want to----
    Ms. Nygaard. Thank you.
    Mr. Dingell. I just want a yes or no answer.
    Ms. Nygaard. No, because the Federal Power Act requires the 
issuance of an annual license on the identical terms as the 
prior license.
    Mr. Dingell. So you impose then no----
    Ms. Nygaard. Therefore, if the prior license has reserved 
authority, we have it to invoke; if it doesn't, we don't.
    Mr. Dingell. You are talking about a license that was 
originally issued probably 50 years ago on which there have 
been a number of changes by the Congress in laws relative to 
the protection of fish and wildlife; is that not so?
    Ms. Nygaard. Yes, but we consider----
    Mr. Dingell. And do you apply any of those----
    Mr. Barton. Mr. Dingell, we ought to let the witness have a 
chance----
    Mr. Dingell. Mr. Chairman, I believe I am proceeding on my 
own time. I want the witness to be clear as to the question so 
that the witness, either of them or any of them, can respond 
properly to the question.
    Mr. Barton. But I also know the chairman, the former 
chairman, wants the whole truth in the record. You consistently 
tell me that every time we have a conversation.
    Mr. Dingell. I am consistently telling you that, and I am 
fully capable of asking my questions----
    Mr. Barton. I understand. Nobody disparages your question.
    Mr. Dingell. [continuing] and seeking the proper answers 
thereof. So I gather that you are reissuing a license that is 
50 years old that is identical to the original license. It 
reflects none of the changes that have been made in the Federal 
law with regard to protection of fish and wildlife value or the 
environment; is that correct?
    Ms. Nygaard. That is correct as to annual licenses.
    Mr. Dingell. Thank you. Thank you. There is a great deal of 
difficulty getting that answer. I want to thank you for your 
assistance, Mr. Chairman, but I really didn't need it.
    Mr. Barton. I don't think the gentleman has ever had 
difficulty asking a question.
    Mr. Dingell. Now, do you deny that this gives strong 
incentive then for licensees to stonewall and to fail to 
provide the necessary information they are supposed to provide 
knowing that they will continue to operate without having to 
adhere to modern environmental laws, such as NEPA, the Clean 
Water Act or any of the fishery protection acts that have been 
imposed in the last 20 years?
    Ms. Nygaard. I can't speak to what is an incentive for 
them.
    Mr. Robinson. That hasn't been what has been the----
    Mr. Dingell. Pardon?
    Mr. Robinson. That has not been the case in my experience 
in dealing with licensing projects for the past 24 years.
    Mr. Dingell. You are telling me it is not an incentive to 
get out from under what might conceivably be an onerous burden, 
such as the----
    Mr. Robinson. Typically, our licensees are seeking 
certainty in the operation of their project, and that certainty 
comes from receiving the new license. They are interested as 
anyone in receiving that.
    Mr. Dingell. Let us look at this. You are intelligent 
people down there in the well. There are a bunch of 
requirements. Some of the fishery acts require, for example, 
when the new license is issued, that steps be taken for the 
protection of salmon runs, fishways up and down. By getting one 
of your 1-year extensions, they don't have to put in a fishway. 
Other mitigation features for the protection of spawning and 
things of that kind are not required by the simple 1-year 
extension. So the people keep extending it. They don't have to 
spend a $0.5 million or $1 million or $2 million for a fishway. 
They don't have to put in spawning. They don't have to do 
anything about moving the fish around the dam by barge or by 
truck, and they save lots of money; isn't that right?
    Mr. Robinson. I don't agree with that.
    Mr. Dingell. You don't.
    Mr. Robinson. No, I don't.
    Mr. Dingell. What is the truth then? While you are busy 
disagreeing with me, tell me what the truth is.
    Mr. Robinson. My experience has been that our licensees are 
as interested as anyone in trying to move the process along so 
that they have the certainty of the new license, so they can 
make business decisions about what they want to do with that 
project. Staying in limbo in the annual license State is not in 
their best interest either.
    Mr. Dingell. But by having the annual license, they get out 
of any of these onerous burdens, do they not?
    Mr. Robinson. Most of our licenses include reopen 
provisions. Even during the annual license period, if we have 
to make a change in that project, we can use those reopeners to 
make those changes, including requiring fish ladders.
    Mr. Dingell. How many times--I want you to submit for the 
record how many times the Commission has during its activities 
taken the necessary steps to reopen an existing license to 
assure that----
    Mr. Robinson. Be happy to.
    Mr. Dingell. [continuing] fish and wildlife protection 
activities were taken by the licensee during the pendency of 
that 1-year extension. And I would like to have every one that 
you can name, giving the name and identification of the 
particular facility, the licensing, the time and the dates.
    [The response appears at the end of the hearing.]
    Mr. Dingell. And, Mr. Chairman, I would ask that that stay 
open--that the record stay open. I thank you for your courtesy. 
I think my time has expired. I have some other fine questions.
    Mr. Robinson. I would be glad to provide that information.
    Mr. Barton. Well, we are going to let Congresswoman 
McCarthy ask her questions. And then if the gentleman from 
Michigan wishes to ask additional questions, he will be given 
that opportunity. Congresswoman McCarthy for 5 minutes.
    Ms. McCarthy. Thank you, Mr. Chairman, and I thank the 
distinguished experts here with us today. In listening to the 
prior questioning of my colleagues, I thought I might follow up 
with a concern that I have listening to the responses. And that 
is with regard to relicensing, I really think based, at least 
on the experience out in Missouri where I am, that we have a 
terrific union electric dam that created the Lake of the Ozarks 
that has brought all kinds of beauty and commerce and good 
things, including energy, to that area of the Ozarks.
    But at the time it was originally licensed, a lot of 
thought wasn't given to environmental concerns, for example. In 
the process of relicensing, I would expect that environmental 
quality concerns might be brought into play. And so I guess 
what I want to pursue is reforming the process of relicensing 
is a good thing, and it can indeed result in significant 
improvements to environmental quality, and putting a strong 
process in place would be both good to expedite as well as 
improve.
    Would you reflect for me, Mr. Chairman, on how FERC has the 
knowledge of all of these issues and can do so without 
consultation with other groups like the U.S. Fish and Wildlife 
Service and the National Marine Fisheries Service? Because when 
Mr. Boucher was visiting with you, you mentioned that they 
hadn't been consulted in this report of May 2. Is it those 
agencies that are slowing down the process that you don't want 
to consult with them so you can speed up the process? And if 
so, does your staff have the expertise they have so the same 
considerations will in fact be brought to the table and become 
part of an improved process of licensing? Does that make sense?
    Mr. Hebert. It makes great sense, and let clear up in the 
very beginning that I don't believe the FERC can adequately 
attempt to speed up the process while at the same time 
protecting the environment without consultation with those 
resource agencies. I don't want you to think that at all. I do 
not believe that. I understand Congressman Boucher's concern 
about consultation after we came out with the 603 report and 
the staff recommendations, but I will assure you, as has been 
done by Mr. Robinson, that there was much consultation with the 
resource agencies that went into the process before the 603 
report came out. Now, was there consultation after the report 
was made, no, and I do want to make it clear there was not. But 
we can----
    Ms. McCarthy. Was that because of a time factor?
    Mr. Hebert. Yes. We were trying to get the report out. We 
had a period that we had to get it out in 6 months, and we did 
get it in under the wire. But we did do the consultation on the 
front end, and I genuinely feel good about that. We are 
certainly always willing to take more comments and learn as we 
go down the road, but I don't want you to think that we are 
trying to maneuver around resource agencies.
    We certainly need their input, and if you ask about 
resources at the FERC, I can tell you that 70 percent of our 
people have previously worked at resource agencies. So we get 
talent from them, and we have got their people in our agency. 
So, certainly, we are continuing to work with those resource 
agencies. In fact, we have got 80 environmental specialists at 
the FERC right now, and 24 of those are fish biologists. So we 
draw from those resource agencies.
    Ms. McCarthy. I think the issue that is before us is 
wanting to help you improve the process.
    Mr. Hebert. Right.
    Ms. McCarthy. But in so doing, we genuinely want a 
collaborative effort that takes a look at issues that might not 
have been considered before this plant was initially licensed 
or even during a relicensing, depending on its age, because 
environmental concerns are very real today on any number of 
levels----
    Mr. Hebert. Sure.
    Ms. McCarthy. [continuing] in all forms of energy. That is 
why we are looking--and hydro has obviously been a very 
important component for States like my own. But I think that is 
what you are hearing from these various members today is the 
concern that for the sake of speeding it up so we have more 
energy, we don't want to lose what we have gained as far as 
issues like environmental quality and a balanced approach where 
all voices weigh in and we try to do what is best for the 
community, the State and the Nation.
    Mr. Hebert. I totally agree with you, and that is why if 
you see the direction that FERC has gone this year, even 
through our price mitigation plan that we have done for the 
West, we have certainly made it very important to look at 
efficiency to try to get the older, dirtier systems off, to get 
the cleaner units on. We certainly understand at FERC the best 
way to have a clean environment, be it clean water, clean air 
or anything else, is to never make it dirty in the first place. 
So we are committed to doing that. And I want you to understand 
we are committed to working with those resource agencies. I 
would never want to exclude them. They have plenty of valuable 
information that we would not necessarily have.
    Ms. McCarthy. I appreciate that very much. I just know that 
my own plant in Missouri is up now for relicensing, and I 
certainly hope that consideration is being given in that 
process to some of the issues that weren't addressed prior to 
this and that hopefully the process will prove that we can make 
those changes, if necessary, if recommended, as part of the 
relicensing and improve the process. Thank you very much. Thank 
you, Mr. Chairman.
    Mr. Barton. Thank you. The gentleman from California, Mr. 
Radanovich, is recognized for 5 minutes.
    Mr. Radanovich. Thank you, Mr. Chairman, and welcome, Mr. 
Hebert; it is good to see you again. I have got a couple of 
questions, but one kind of revolves around an article in the 
Wall Street Journal about Richard Meserve and the NRC's 
relicensing process for nuclear facilities. And in that article 
was mentioned a nuclear power generating plant that during the 
past year had costs of $200 million to operate while producing 
about $1.6 billion worth of electricity. And I believe it was a 
municipality or something that is--it is not under FERC 
jurisdiction. And the gap between the cost of production and 
what they were getting is quite large. In much the same way are 
the companies that are under your jurisdiction are being 
charged, as far as high prices.
    And I am wondering, given that, that because 30 percent of 
the alleged overcharge is for electricity in California from 
non-FERC jurisdiction power sellers, to what extent are these 
power sellers participating in the current settlement 
conference that you are dealing with? And what is FERC doing to 
make sure that prices charged by all the power sellers are 
treated equally, given that you don't have the jurisdiction 
over almost 60 percent, even in California?
    Mr. Hebert. Actually, what we did to subject everyone to 
our price mitigation plan, is we said that, in fact, if you 
were using the ISO, if you were using the tariffs, a wire 
subject to FERC's jurisdiction, that you would be roped into 
that process. So that was our way to, as we lawyers say, to 
bootstrap them in so we can get them under the price 
mitigation.
    Now, when it comes to the refund authority, that is very 
tricky and somewhat different. As we set up the settlement 
process for California, we are learning that the parties are 
coming to the table. Everyone has always got a different 
negotiation strategy of what they come forth with. We did issue 
a clarification on the order Friday, which would include the 
parties to the Northwest so we can hopefully get one settlement 
that comes forward. I think that moves us in a proper 
direction.
    What comes out of it, I don't know, but I will tell you 
even though I am extrinsic right now to the settlement process 
because we have sent the refund case to a settlement judge, 
ethically and legally I am prohibited from being involved, and 
we are hoping our settlement judge will bring us some 
recommendation after the 15-day period, and then 7 additional 
days after that to make a recommendation if they don't meet 
settlement. But it has been shared with me by my chief of staff 
earlier that BPA is in the room--I am sorry? WPA is in the 
room. So we have some of the non-jurisdictional facilities in 
there.
    Mr. Radanovich. Okay, great. I appreciate that.
    Mr. Hebert. LADWP I do know is in there as well.
    Mr. Radanovich. Is that right? Okay. And also being from 
California, I am real interested in California getting its act 
together in the power generating business here as soon as 
possible. And in that scenario, I really don't think things are 
going to be back to normal until we get the Governor out of the 
energy purchasing business and somehow make the utilities 
creditworthy again. And then get them a sizable portion of 
their purchases off the spot market.
    Given that, I am kind of surprised that FERC is in this 
area of negotiation in order to settle the past problems that 
we have experienced in California, although I welcome and I am 
glad that everybody is at the table working this thing out. I 
guess my question is, is it possible for FERC to get involved 
in any way in making sure that our utilities are creditworthy 
again?
    Mr. Hebert. We have done that through our price mitigation 
plan. I, certainly, personally thought it was important 
understanding that if you are in the energy industry the 
business climate is somewhat undesirable right now because of 
non-payment in California. That is why we had the 10 percent 
adder on to the costs that we are looking at through the price 
mitigation plan. It is something that we are continuing to work 
through, but I think it is vitally important that we do 
everything we can to keep California moving forward.
    As to that, I will tell you a utility being in bankruptcy, 
talks about another one declaring certainly doesn't help us. 
When we talk about generation, as we all know, we have got to 
add capacity, we have got to add supply. When we have press 
releases which say there are going to be 5,000 megawatts added 
by August of this year and then another press release some 3 or 
4 months later is issued saying, ``Well, we are going to have 
2,300.''
    Mr. Radanovich. Yes, if that.
    Mr. Hebert. If some are saying 1,200 megawatts now, I will 
be frank with you, I don't think that is not enough to get it 
done, and there have to be some real tough decisions made by 
some leaders in California. Let me say this while I am before 
this committee, the debate that was brought forth by this 
committee I believe got information in front of FERC and other 
people that allowed us to make good decisions.
    Mr. Radanovich. Okay. Then I would just express my 
gratification for the fact that FERC is going through this 
arbitrage, I guess, if you want to call it. And if the efforts 
of that, whatever refunds there are, can be directed toward 
making our utilities creditworthy again and getting them back 
in business would just go a long way to solving California's 
energy problems.
    Mr. Hebert. My intent as Chairman of FERC and why I like 
the settlement process right now is to put the problems behind 
us and move forward. And then we can completely focus on 
getting the supply in and building the infrastructure. But 
right now we are still dealing with some past debts, and we 
really need to put that behind us.
    Mr. Radanovich. Yes, I agree with you 100 percent, and 
appreciate your efforts in that area.
    Mr. Hebert. Thank you.
    Mr. Barton. The gentleman from Oregon is recognized for 5 
minutes. And would remind members the subject of the hearing is 
supposed to be hydro relicensing and nuclear. The FERC Chairman 
is here specifically for hydro licensing, although he is 
obviously knowledgeable on electricity issues in general.
    Mr. Hebert. We did, as a part of our mitigation plan, 
remove obstacles and impediments to help squeeze out every 
megawatt, including out of hydropower, and make it available, 
if that helps, for the record, Mr. Chairman.
    Mr. Barton. It does help. Thank you.
    Mr. Walden. Mr. Chairman, thank you for the time. Chairman 
Hebert, I am delighted you are here. I was sort of hoping that 
Mr. Massey would be here as well, because it would be one of 
the rare times that his testimony and yours would actually be 
in concert on an issue, and I was looking forward to 
celebrating that.
    I would commend you for the action that the Commission took 
in several instances to make changes in the way some of these 
projects were operated to provide more power during critical 
times. And I would specifically note one involving Idaho Power, 
where involving Twin Falls you allowed more power to be 
produced simply by reducing the water going over the falls that 
had been there for aesthetic purposes so you can see a falls, 
except on State and Federal holidays. Then we can flow the 
water. So that added, I think, 6,300 or 9.700 megawatt hours--
15 to 17 percent increase.
    And I don't need to tell you that in the Northwest where 
upwards of 70 percent of our power comes from hydro, we are 
both concerned about the relicensing process, how to fully 
maximize use of existing hydro. And then on a side note, it 
would be splendid, I think, to look at existing hydro projects 
where additional capacity could be achieved. There are all kind 
of reports out there where that is a possibility.
    What disturbs me, though, are reports of a range of 1.6 to 
8 percent reduction with relicensing. And yet we see that and 
it is almost dismissed by some as necessary. On the other hand, 
I go to the floor today, and we are going to debate another 
sort of price cap issue, because we are concerned about price. 
Price and supply are connected.
    Mr. Hebert. They are.
    Mr. Walden. And that brings us, I guess, to the relicensing 
process. And I have read through GAO's report. I have tried to 
wade through FERC's rather lengthy document as well. And I 
guess I am concerned about whether you view the ability of FERC 
to be able to really balance the need for an effective hydro 
system where these mandatory requirements of these other 
agencies. Is that possible to do or do those mandatory 
requirements actually trump your ability run a hydro system?
    Mr. Hebert. You really put your finger on the crux of the 
problem. However, you mentioned Idaho Power, and that is a 
great example of how FERC can work with other agencies and can 
get things done in a very positive manner. We are trying to 
squeeze out every megawatt for the West so we can keep the 
lights on and keep prices at a reasonable level.
    But, when we start looking at mandatory requirements, one 
of the problems that slows the process down, that adds cost 
and, in the end, probably means that we lose some very valuable 
megawatts that, quite frankly, we desperately need in the West 
right now, is that the resource agencies are not required to 
balance the mandatory requirements with power interests and 
other needs. FERC is the only agency that is statutorily bound 
to provide balance and therefore that is where the trump comes 
in.
    Mr. Radanovich. So those agencies then really are able to 
define the operations of the projects--operation of a project 
in a way that they see fit, irrespective of the power 
generation issue. Is that accurate?
    Mr. Hebert. Correct.
    Mr. Radanovich. So, basically, what they tell you, you have 
to take and use, right?
    Mr. Hebert. Pretty much, yes.
    Mr. Radanovich. Now, it seems like, and I believe it is you 
alternative licensing process, sort of the up-front process, 
very collaborative involving all the stakeholders. That seems 
to result in a much rapid and reliable licensing process. Are 
there improvements from there that you see being able to be 
applied elsewhere?
    Mr. Hebert. Let me tell you, we are learning from the 
collaborative process. It is something certainly we have seen 
work very well in the gas pipeline industry. When we get groups 
together, we choose the correct route in the first place. So we 
don't have a second route, we cut our processing time. So we 
don't miss the construction seasons. We get the infrastructure 
there quickly.
    Our belief, and certainly my belief, is that that the same 
styled collaborative process with some adjustments down the 
road will aid and benefit Americans.
    Mr. Radanovich. Let me ask you one final question, if I 
may. There has been some discussion about FERC's inability or 
lack of activity in reopening some of these projects for 
environmental issues as they have arisen. And yet aren't there 
are at least two examples in the Northwest and PGE and Idaho 
Power where those cases have been reopened for environmental 
reasons? My understanding.
    Mr. Hebert. Let me get Mr. Robinson to answer that real 
quick.
    Mr. Robinson. From the references you make, I am not 
familiar with the specific cases, but we have reopening type 
proceedings going on at all times, including projects for Idaho 
Power and PG&E. Most of those, and I think it speaks to the 
licensees trying to live within that community in which their 
projects exist and keep everything moving smoothly, include 
changes initiated by the licensees themselves coming and 
seeking amendments to their project to satisfy environmental 
concerns without us having to reopen those proceedings.
    Mr. Radanovich. But you have the statutory authority to 
reopen, correct?
    Mr. Robinson. In those licenses which include that 
provision, which I think since about 1975 or so is just about 
all the licenses we have issued since then and a good number 
before then.
    Mr. Radanovich. Thank you, Mr. Chairman.
    Mr. Barton. Thank you. Does the gentleman from Michigan 
have additional questions? The gentleman is recognized for 5 
additional minutes.
    Mr. Dingell. I thank you. Mr. Chairman, please tell us how 
many dams the Federal Energy Regulatory Commission has licensed 
new since 1978 on a year-by-year basis. You don't have to do 
that now, but please submit it for the record.
    [The response appears at the end of the hearing.]
    Mr. Dingell. I would ask, though, how many new dams, large 
dams, have been licensed by FERC since 1990?
    Mr. Hebert. Large?
    Mr. Dingell. Large.
    Mr. Hebert. None.
    Mr. Dingell. None. How many between 1980 and 1990?
    Mr. Hebert. I would like to look at the record, but my 
guess would be none. But I will provide that information.
    Mr. Dingell. I would appreciate that.
    [The response appears at the end of the hearing.]
    Mr. Dingell. The reason I ask this question, Mr. Chairman, 
is your complaints about the different environmental statutes 
that you confront in licensing are not much of a problem 
because you simply issue--if the initial application is not 
properly perfected, you simply then issue a year extension to 
them and disregard the requirements of law that are so onerous 
to the applicants; is that not so?
    Mr. Hebert. We do extend from time to time, but I would not 
say that we disregard the law; no, sir.
    Mr. Dingell. Well, your complaint, though, lies about 
relicensing; isn't that right?
    Mr. Hebert. That is correct.
    Mr. Dingell. And so on relicensing if they are not ready to 
go forward on relicensing, you just give them a year extension; 
isn't that right?
    Mr. Hebert. That has been done, yes.
    Mr. Dingell. So what is the delay that stems from these 
environmental requirements and these fish and wildlife 
protection requirements?
    Mr. Hebert. Well, the delay is that if we don't have the 
relicensing provision that is finally completed, there 
continues to be costs that are borne by the ratepayers.
    Mr. Dingell. But not significantly, because you issue the 
renewal automatically; isn't that right?
    Mr. Hebert. I would say significantly probably depends on 
if you live in Oregon, California or New York.
    Mr. Dingell. Well, if you live in Oregon, California or New 
York, you get your relicensing issued by an automatic renewal 
issued by the Commission. How much time and money does that 
cost?
    Mr. Robinson. If I could add, relicensing process itself 
costs money. It takes----
    Mr. Dingell. How much?
    Mr. Robinson. [continuing] effort and time.
    Mr. Dingell. How much?
    Mr. Robinson. We calculated that the overall cost of 
supporting the application was around $85 per kilowatt of 
installed capacity. But that varies tremendously by the length 
of the licensing process. Fully 25 percent of the cost of 
relicensing occurs after the application is filed.
    Mr. Dingell. How long does it take--if I was to walk in to 
get a relicensing and you were just to issue me an automatic 
renewal, how long would it take me to get it and get out of 
there?
    Mr. Robinson. The automatic renewal, if you came in----
    Mr. Dingell. How long would it take, and how many papers 
would I have to submit?
    Mr. Robinson. You have to submit a significant amount of 
paper. In fact, most of our applicants now are asking if they 
can come in on CD-Rom, because the paper requirements are so 
large.
    Mr. Hebert. I would love to provide the committee a matrix, 
basically, of what you are required to do. And I assure you, 
sir, it is uninviting.
    Mr. Dingell. All right. Now, how much delay then comes from 
the Clean Water Act about which you complain, Mr. Chairman? You 
told us this was a significant problem. The only thing that you 
have to do is show that they are in compliance with the Clean 
Water Act and that the placing of the dam or the renewal of the 
license is not going to create any additional pollution in the 
stream. The only pollutions I can think of that could flow from 
a dam would be the cooling of the water. What other situations 
would afflict the State agency and would affect adversely the 
water quality standards which would be fixed by the agency 
under Clean Water Act?
    Mr. Hebert. Congressman Dingell, we have found that close 
to 40, I think it is 39, percent of the delay is caused by 401 
Clean Water. And I will tell you I think that is a great point 
to make, because I think when Americans think of clean water, 
they think about preventing pollution. But, the 401 is used to 
establish many other things other than to make certain that we 
have clean water. I will go anywhere with you to ensure that we 
have clean water and we don't have pollution. I guarantee you 
that. But when there are costs that are borne by ratepayers 
because docks and camping facilities are included to meet Clean 
Water Act requirements.
    Mr. Dingell. Mr. Chairman, I don't mean to be discourteous, 
but I am limited on time.
    Mr. Hebert. I am just trying to give you a full answer.
    Mr. Dingell. But I am trying to find out what you are 
compelled to enforce of the Clean Water Act in the relicensing 
process. The only change in water quality that comes from the 
issuance of that license is temperature. You don't increase 
salinity, you don't increase turbidity, you don't add salinity 
or anything else to the water. And there is no pollution, which 
is increased, which cannot be addressed by the State agency 
under its other powers against the polluter through other 
activities.
    Mr. Hebert. Chairman Dingell, on pollution, I totally agree 
that we need to do everything we can. But, sir, the problem is 
that we don't get to define it. It is defined within the 
States, and the States throw a list of things in there, which 
don't have, quite frankly, anything to do with pollution or 
clean water.
    Mr. Dingell. Well, but that is not then a Clean Water Act 
problem; that is a different problem.
    Mr. Hebert. It is the mandatory requirements of those 
resource agencies that they are able to use through 401.
    Mr. Dingell. Well, what are you supposed to do with those 
mandatory requirements?
    Mr. Hebert. Well, we include them.
    Mr. Dingell. You include them?
    Mr. Hebert. Absolutely; we are forced to.
    Mr. Dingell. Unless you issue an automatic renewal.
    Mr. Hebert. For a year.
    Mr. Dingell. For a year.
    Mr. Hebert. Which gets us nowhere, sir. I am trying to make 
good decisions that will give American's decisions they can 
rely on for more than 365 days at a time.
    Mr. Dingell. I hope you are not offended, but what it tells 
me is that it gets them and you to the point where you issue 
another one of these automatic renewals at the end of the year. 
And then at the end of that year, another automatic renewal, 
and the end of that year, another automatic renewal.
    Mr. Hebert. Well, let me sum it up by saying this: With all 
due respect, I will do whatever you think is important to 
ensure that we have clean water and that pollution is 
prevented. But, sir, with all due respect, looking at something 
from year to year is exactly the type of mentality that got us 
to California with the lack of supply and the lights going on 
and energy costs high.
    Mr. Dingell. My concern here is that you were complaining 
about the burden of enforcing the State water quality 
standards. I don't think there are any State water quality 
standards I find here that would cause you any significant 
trouble since the dam contributes nothing to the level of 
pollution in the river, with the possible exception of a change 
of the thermal temperature of the river. I yield to my friend, 
the chairman.
    Mr. Barton. Well, I am just saying the gentleman's time 
expired about 3 minutes ago.
    Mr. Dingell. Can I get an answer to the question, Mr. 
Chairman?
    Mr. Barton. I think he has answered it three or four times 
in somewhat slightly different variations. If you ask the 
question again three or four times----
    Mr. Dingell. It would comfort me if I could get an answer.
    Mr. Barton. Well, we want you comforted, so----
    Mr. Dingell. Otherwise, I will be sad.
    Mr. Hebert. Can I do it this way: Congressman Dingell is 
absolutely right. Would that help?
    Mr. Barton. It is okay by me. If that satisfies him. I am 
not sure that would satisfy him.
    He may think he has asked the question wrong if you say he 
is totally right.
    Mr. Dingell. I was sort of afraid that you would come to 
that conclusion, Mr. Chairman, but I am comfortable with it.
    Mr. Barton. All right. Before I go to Mr.----
    Mr. Hebert. I respect your opinion, Congressman Dingell.
    Mr. Barton. We are going to recognize Hydro Man Shadegg 
here, but under your chairmanship on the issue that Mr. Dingell 
was talking about, has the FERC Commission in the time you have 
been either a commissioner or Chairman of it operated any 
differently on these automatic renewals? In other words, have 
you continued the existing practices in place when you came on 
the Commission? Or have you changed any procedures in the 
issues that Mr. Dingell was asking about?
    Mr. Hebert. We are hopeful that through our 603 report we 
will make changes, but they have not been made at this point, 
no. And the renewals that Congressman Dingell is speaking about 
I don't have the ability to grant or not; they are automatic.
    Mr. Barton. But that is not a practice that you established 
as Chairman. It was a practice that was in place when you came 
on to the Commission and then became Chairman.
    Mr. Hebert. That is correct and required by law. And I am 
trying to get out of the year to year. I am trying to either 
grant a license or deny a license and move forward.
    Mr. Barton. Okay. The gentleman from Arizona is recognized 
for 5 minutes.
    Mr. Shadegg. Thank you, gentlemen, and I want to thank our 
witnesses, particularly Commissioner Hebert, for being here. I 
appreciate the work he is doing in a difficult climate as the 
country faces an energy crisis, and we in the west coast in 
particular face one. And I think the Commission is attempting 
to respond to the various pressures and demands on it, which 
are intense.
    This hearing is devoted to, in part, nuclear energy but 
also, in part, hydropower. I am, as the chairman has indicated 
by his quip, Hydro Man. I am a strong proponent of hydropower, 
because I believe it holds the potential to provide very clean 
energy at a very low cost. It is uniquely suited to dealing 
with peaking problems, which is the problem we face in 
California and other places. And it can do so in an 
environmentally neutral fashion.
    And, therefore, I think it is something we ought to be 
looking at? I believe, Mr. Chairman, you may know that I am 
responsible for proposing legislation that would allow the 
addition of new turbines to existing dams which have no 
turbines and the addition of more efficient turbines as a 
substitute for inefficient turbines current in dams. We are not 
talking about building new dams; we are talking about 
generating more electricity at the dams that we already have.
    In that regard, I want to ask you a question about the 
relative cost of preparing a license application and 
implementing the environmentally based mandatory condition 
measures between smaller hydro projects and the projects which 
are naturally gas-fueled, as most of them are. The information 
I have suggests that the total cost for a small hydropower 
project is about $1,900 per kilowatt hour versus as little as 
$500 per kilowatt hour at a gas-fired generating plant.
    It seems to me to make no sense to take a plant that uses 
natural gas, of which we have a finite supply and which does in 
fact pollute to some degree, even though it probably pollutes 
less than any other we have besides nuclear and hydro, and make 
the regulatory cost much less for that source than it is for a 
clean source like hydro. And if you could address that, I would 
appreciate it.
    Mr. Hebert. Well, what we are committed to doing is to try 
to lessen the cost of regulation, be it on hydro or gas or 
anything else. But, certainly, it is important right now during 
this time of needed supply with questionable reliability to 
have any and all energy. You talk about gas, you talk about 
hydro, you talk about nuclear. The one that you are 
consistently talking about is fuel.
    And when you look at the opportunities for fuel, you look 
at nuclear, you look to hydro. You have to believe, as I know 
you do believe, that those are available resources that are 
clean when it comes to air quality, and we need to be looking 
for every available opportunity that is out there. But at the 
same time, we must be committed to speeding up that process and 
therefore cutting the costs. Because, as you know, the cost is 
always picked up by the ratepayers; it gets to them.
    Mr. Shadegg. It seems to me, and I still didn't--maybe I am 
not unlike former Chairman Dingell in this regard. I am not 
certain I heard an answer. Let me ask you point blank, does it 
make sense for us to have a regulatory structure where it costs 
almost four times as much to license a hydropower plant as it 
costs to license a new natural gas-fired plant?
    Mr. Hebert. It does not make economic sense. I will tell 
you that there are burdens within the regulatory scheme, when 
you look at hydro, that are not there, when it comes to simple 
cycle or combined cycle natural gas. Specifically, we are 
talking about recreation. We are talking about fish. So there 
are added environmental aspects that we must protect that are 
important as well.
    Mr. Shadegg. It seems to me that we ought to be looking at 
policies which say that if it is a small hydro plant with very 
little environmental implication, we ought to be what we can to 
reduce those licensing costs. And right now I think there is a 
lower licensing burden for extremely small hydro plants, but we 
ought to be looking at whether or not that is set at an 
appropriate level.
    The other question I want to ask you is that between 1982 
and 1992 there was a median processing time for relicensing 
cases of 30 months. Now, in the decade or in the time span 
between 1993 and 2000, that median processing time has grown to 
43 months. It seems to me, if the Nation faces an energy 
crisis, as I believe it does, we need to be going in the 
opposite direction on that time span, and I would like to give 
you a chance to address that issue.
    Mr. Hebert. That one is easy: I agree with you 100 percent. 
We need to squeeze every megawatt that is available out there, 
and we need to get available capacity and supply quickly. That 
not only means hydro capacity; it also means natural gas, it 
means clean coal technologies, it means nuclear. It also means 
intrastate capacity on pipes within States. We have seen 
problems in California where they can't deliver to it once we 
get it to them in the border. We also need better interstate 
capacity on pipes.
    Several years ago, I testified right here where they talked 
about 30 TCF marketplace by the year 2010. If we do what is in 
the queue now of natural gas, there was a projection from Wall 
Street about a month or 2 ago that said we would be at 30 TCF 
by the year 2004. We certainly do not have the infrastructure 
to supply that.
    Mr. Shadegg. My last question may seem like a trick 
question, but it is not. I don't know--I know the legislation I 
have sponsored would both allow the installation of generating 
turbines in dams that don't have turbines but water comes 
through those dams, so we could capture that fuel. You called 
it a fuel. I brought a hydrologic cycle in here from a fourth 
grade textbook in 1999 and pointed out that with hydro it 
really isn't fuel; it is kind of a continuing process of 
nature, and we went through a little lesson on hydrology.
    Mr. Hebert. Since you are the expert, I would say that is 
right.
    Mr. Shadegg. That is right. Well, fourth graders learn it. 
But I guess the second part of my bill says we ought to 
encourage the installation of more efficient newer turbines in 
existing dams. Now, I can concede that there might be an 
environmental implication for putting a turbine into a dam that 
does not now have a dam, though it is not the building of a new 
dam, about which there are great environmental concerns.
    But I guess my question of you is, are you aware of any 
environmental implication by pulling an inefficient turbine out 
of an existing dam and putting a more efficient turbine into 
that dam?
    Mr. Hebert. Well, FERC has taken a strong position on 
efficiency as a very good thing, and we should move in that 
direction. At this point, no, I am not aware of any, and I 
would think if you are going to put in new turbines, you could 
improve upon the environmental benefits of that turbine.
    Mr. Shadegg. Precisely. Thank you, Mr. Chairman. I yield 
back the balance of my time.
    Mr. Barton. Does the gentleman from Massachusetts wish to 
ask questions? Okay.
    Mr. Hebert. I was hoping for a song.
    Mr. Barton. Do not encourage the gentleman from 
Massachusetts now.
    Mr. Hebert. He wanted to talk about windmills last night.
    Mr. Barton. He is being cooperative. We do not want you to 
bait him, okay?
    Mr. Hebert. We had a discussion on Cervantes.
    Mr. Barton. We are going to hold the witness in contempt of 
the Chair here.
    Mr. Hebert. I am sorry.
    Mr. Barton. We do thank you----
    Mr. Hebert. Thank you.
    Mr. Barton.  [continuing] Chairman and the associates from 
FERC. We will have written questions for the record. Any ideas 
on legislation in this area you need to get to us at the member 
staff level in the next week, because we want to mark this up 
the week we come back after July 4.
    Mr. Hebert. I will. And once again, Mr. Chairman, if I may 
close with saying I really appreciate all members of this 
committee. I certainly appreciate your leadership in helping us 
get the debate out there to move California in the right 
direction.
    Mr. Barton. Well, we do think that now that you are at a 
five-member commission, you are doing excellent work, and you, 
as Chairman, are to be commended. Many of the things that you 
and I talked about on the record last summer have come to pass 
in a negative sense in terms of the environment. But on the 
positive side, many of the solutions that we have both 
supported, somewhat grudgingly, in cases are beginning to be 
implemented, and we are seeing an improved situation. You are 
to be commended for that. You don't get too much public 
commendation, and I want to commend you.
    Mr. Hebert. Thank you. I would commend the FERC staff, and 
I appreciate you saying that.
    Mr. Shadegg. Mr. Chairman? Mr. Chairman?
    Mr. Barton. Yes.
    Mr. Shadegg. Thank you. I missed Chairman Dingell's 
questioning, but I just wanted to ask Mr. Hebert if he had an 
opportunity--if he needed to clarify the water quality 
certification process and the burden on States, in light of the 
questioning that occurred before?
    Mr. Hebert. I would be more than happy, and it would help 
me to be able to provide additional testimony on that to the 
committee.
    Mr. Shadegg. That would be very helpful.
    [The response appears at the end of the hearing.]
    Mr. Barton. We are going to excuse this panel and call 
forth our last panel of the day. We have Barry Hill, who is 
director of the Natural Resources and Environment Department of 
the Government Accounting Office, and he is accompanied by Mr. 
Charles Cotton. We should have Mr. John Prescott, the vice 
president of Generation for Idaho Power. We should have Ms. 
Elizabeth Birnbaum, who is the director of Government Affairs 
for the American Rivers Association. And we should have Mr. 
Ronald Shems, who is appearing on behalf of the Vermont Agency 
of Natural Resources.
    If we could shut the door there at the back of the hearing 
room, if one of the folks could shut that door.
    Well, welcome. It has been a long day. We appreciate you 
agreeing to testify. We are going to start with Mr. Hill, then 
we will go to Ms. Barlow, Mr. Prescott and Ms. Birnbaum, and 
last but not least Mr. Shems. Your testimony is in the record 
in its entirety, so we will recognize each of you for 5 minutes 
to verbally summarize it.
    Welcome, Mr. Hill.

  STATEMENTS OF BARRY T. HILL, DIRECTOR, NATURAL RESOURCES AND 
   ENVIRONMENT; ACCOMPANIED BY CHARLES S. COTTON, ASSISTANT 
DIRECTOR AND ERIN BARLOW, SENIOR ANALYST, NATURAL RESOURCES AND 
  ENVIRONMENT, GENERAL ACCOUNTING OFFICE; JOHN PRESCOTT, VICE 
  PRESIDENT OF GENERATION, IDAHO POWER COMPANY; S. ELIZABETH 
 BIRNBAUM, DIRECTOR, GOVERNMENT AFFAIRS, AMERICAN RIVERS; AND 
  RONALD SHEMS, ATTORNEY, SHEMS, DUNKIEL, PLLC, ON BEHALF OF 
              VERMONT AGENCY OF NATURAL RESOURCES

    Mr. Hill. Thank you, Mr. Chairman. I am pleased to be here 
today to discuss the process that FERC uses to issue licenses 
for constructing and operating non-Federal hydropower projects.
    In recent years, some licensees and other participants in 
FERC's licensing process have expressed concern that obtaining 
a license now takes too long and costs too much. Responding to 
these concerns, FERC established an alternative licensing 
process, and other Federal agencies have introduced reforms 
intended to make the licensing process more efficient and less 
costly. However, these reforms did not quell the concerns. As a 
result, in November 2000, the Congress directed FERC to conduct 
a comprehensive review of the policies, procedures and 
regulations relating to the licensing of non-Federal hydropower 
projects to determine how to reduce the time and cost 
associated with obtaining a license.
    Prior to the enactment of this statute, the chairman of the 
House Appropriations Subcommittee on Interior and Related 
Agencies asked GAO identify and assess significant issues 
related to the process. We reported our findings on May 2 of 
this year, and FERC reported its findings on May 8. Both 
reports observed that Federal and State land and resource 
agencies, licensees, environmental groups, and other 
participants in the licensing process, acknowledge that the 
process to obtain a license is far more complex, time-consuming 
and costly today than it was 30 to 50 years when FERC issued 
original licenses to own and operate about 1,000 non-Federal 
hydropower projects.
    Today, FERC faces a formidable challenge in issuing a 
license that is legally defensible, scientifically credible and 
likely to produce and enhance fish and wildlife and other 
resources while still preserving hydropower as an economically 
viable energy source.
    Both FERC and we also found that participants in the 
licensing process do not agree on the effectiveness of recent 
reforms to the process or on the need for further reforms to 
shorten the process and make it less costly. Some within and 
among the diverse parties believe that the time and money spent 
on licensing a project reflect the level of complexity of the 
issues involved. And that recent reforms will likely reduce the 
time and cost needed to obtain a license. Conversely, others 
believe that recent reforms will do little to reduce time and 
costs. However, they cannot agree on what further reforms are 
needed to shorten the process and make it less costly.
    FERC and we do not agree, however, on the better time and 
cost data to reach informed decisions about process reforms. To 
resolve the disagreement among process participants and to 
reach informed decisions on the effectiveness of recent reforms 
and the need for further administrative reforms or legislative 
changes, we believe that FERC needs to work with other process 
participants to develop a system to collect and share complete 
and accurate data on process related time and costs by 
participant, project and process step, and develop the ability 
to link the data to projects displaying similar characteristics 
in order to identify those projects, process and outcome 
characteristics that increase the time and cost to obtain a 
license.
    Conversely, FERC believes that available data, coupled with 
its years of experience with the licensing process are adequate 
to reach informed decisions on the effectiveness of recent 
reforms to the licensing process, as well as the need for 
further reforms to the process.
    Mr. Chairman, if FERC Federal and State land and resource 
agencies, licensees, environmental groups, and other 
participants in the licensing process agreed on whether further 
reforms are needed to reduce process related time and costs, 
then the importance of good data to reach good decisions would 
be diminished. However as FERC states in its May report, the 
areas of agreement tend to be overshadowed by disagreements 
among process participants. As a result, the recommendations in 
FERC's report reflect only the views of its staff on how to 
make the process more efficient.
    We believe that both the Commission and the Congress need 
to carefully consider the recommendations made by the FERC 
staff. Some of the recommendations appear to be based on 
inadequate or inappropriate data, and more importantly, some, 
such as making FERC the sole Federal decisional authority for 
licensing conditions and processes, may cause changes and 
unintended consequences to the outcomes of the process.
    Mr. Chairman, this concludes my statement. I would be happy 
to answer any questions you may have.
    [The prepared statement of Barry T. Hill follows:]
 Prepared Statement of Barry T. Hill, Director, Natural Resources and 
          Environment, United States General Accounting Office
    Mr. Chairman and Members of the Subcommittee: We are pleased to be 
here today to (1) discuss our May 2, 2001, report on the process used 
by the Federal Energy Regulatory Commission (FERC) to issue licenses to 
construct and to operate nonfederal hydroelectric power (hydropower) 
projects 1 and (2) provide our preliminary views on FERC's 
congressionally mandated May 8, 2001, report on hydroelectric licensing 
policies, procedures, and regulations.2
---------------------------------------------------------------------------
    \1\ Licensing Hydropower Projects: Better Time and Cost Data Needed 
to Reach Informed Decisions About Process Reforms (GAO-01-499, May 2, 
2001).
    \2\ Report on Hydroelectric Licensing Policies, Procedures, and 
Regulations: Comprehensive Review and Recommendations Pursuant to 
Section 603 of the Energy Act of 2000, prepared by FERC staff (May 8, 
2001).
---------------------------------------------------------------------------
    In summary:

 FERC, federal and state land and resource agencies, licensees, 
        environmental groups, and other participants in the licensing 
        process acknowledge that the process to obtain a license is far 
        more complex, time-consuming, and costly today than it was 30 
        to 50 years ago when FERC issued original licenses to own and 
        operate about 1,000 nonfederal hydropower projects. Today, FERC 
        faces a formidable challenge in issuing a license that is 
        legally defensible, scientifically credible, and likely to 
        protect and enhance fish, wildlife, and other resources while 
        still preserving hydropower as an economically viable energy 
        source.
 Both FERC and we have reported that participants in the 
        licensing process do not agree on the effectiveness of recent 
        reforms to the process or on the need for further reforms to 
        shorten the process or make it less costly. Some within and 
        among the diverse parties believe that the time and money spent 
        on licensing a project reflect the level of complexity of the 
        issues involved and that recent reforms will likely reduce the 
        time and costs needed to obtain a license. Conversely, others 
        believe that recent reforms will do little to reduce time and 
        costs. However, they cannot agree on what further reforms are 
        needed to shorten the process and make it less costly.
 FERC and we do not agree, however, on the need for better time 
        and cost data to reach informed decisions about process 
        reforms. To resolve the disagreement among process participants 
        and to reach informed decisions on the effectiveness of recent 
        reforms and the need for further administrative reforms or 
        legislative changes, we believe that FERC needs to work with 
        other process participants to develop (1) a system to collect 
        and share complete and accurate data on process-related time 
        and costs by participant, project, and process step and (2) the 
        ability to link the data to projects displaying similar 
        characteristics in order to identify those project, process, 
        and outcome characteristics that can increase the time and 
        costs to obtain a license. Conversely, FERC believes that 
        available data coupled with its ``years of experience'' with 
        the licensing process are adequate to reach informed decisions 
        on the effectiveness of recent reforms to the licensing process 
        as well as the need for further reforms to the process.
 After reviewing FERC's May 8, 2001, report, we continue to 
        believe that good data are needed to reach good decisions. 
        Moreover, we believe that both FERC's five-member Commission 
        and the Congress need to carefully consider the recommendations 
        made by FERC staff. Some of the recommendations appear to be 
        based on inadequate or inappropriate data and some may change 
        the outcomes of the process.
Background
    About 10 percent of all electricity production in the United States 
is generated by hydropower projects. Federally owned and operated 
hydropower projects generate approximately half of this amount, while 
about 1,000 nonfederally owned and operated hydropower projects, which 
are licensed by the federal government, generate nearly all of the 
rest.3 Hydropower projects can include dams, reservoirs, 
stream diversion structures, powerhouses containing water-driven 
turbines, and transmission lines.
---------------------------------------------------------------------------
    \3\ About 600 additional small generating capacity hydropower 
projects are exempted from the federal licensing requirement. 
``Projects'' in this testimony refers to the large, licensed hydropower 
projects.
---------------------------------------------------------------------------
    Hydropower is an important part of the nation's energy mix. It 
offers the benefits of a comparatively inexpensive, emission-free, 
renewable energy source, the quantity of which can be increased quickly 
in periods of peak demand. In addition, the reservoirs behind 
hydropower dams often provide other benefits, including recreation, 
flood control, irrigation, and a municipal water supply. However, 
hydropower projects can also have adverse effects on ecosystems and 
resources, including fish and wildlife. They can change the fundamental 
chemical, physical, and biological processes of river ecosystems by (1) 
fluctuating river levels and altering the timing of flows, (2) blocking 
the downstream flow of nutrients and sediments, (3) changing water 
temperatures and oxygen levels, (4) impeding fish from migrating up and 
down streams or killing them as they pass through turbines used to 
generate power, and (5) drying out sections of streams.
    The Federal Power Act (FPA) authorizes FERC to issue licenses to 
construct and to operate nonfederal hydropower projects. FERC--an 
independent five-member commission appointed by the President and 
confirmed by the Senate--issues licenses valid for periods up to 50 
years, after which the projects must be relicensed in order to continue 
operations.
    FERC issued original licenses for most of the about 1,000 
nonfederal hydropower projects decades ago. It now issues few licenses 
to construct and operate new hydropower projects. Therefore, most of 
FERC's licensing activities relate to the relicensing of projects with 
licenses currently nearing their expiration dates.
    Between January 1, 1993, and December 31, 2000, the licenses for 
395 of these projects expired. Many of these were small projects that 
do not generate much power. According to FERC, over the next 15 years, 
the licenses for another 238 projects will expire. The 238 projects, 
many of which are large, combine to generate over half of the nation's 
nonfederal hydropower.
    In recent years, some licensees and other participants in the 
licensing process have expressed concern that obtaining a license now 
takes too long and costs too much. Responding to these concerns, FERC 
established an alternative licensing process, and other federal 
agencies have introduced reforms intended to make the licensing process 
more efficient and less costly. However, these reforms did not quell 
the concerns. As a result, in November 2000, the Congress directed FERC 
to conduct a comprehensive review of the policies, procedures, and 
regulations relating to the licensing of nonfederal hydropower projects 
to determine how to reduce the time and costs associated with obtaining 
a license. FERC reported its findings on May 8, 2001.
The Licensing Process Is More Complex, Lengthy, and Costly Than It Was 
        30 to 50 Years Ago
    FERC and other participants in the licensing process acknowledge 
that the process is far more complex, time-consuming, and costly today 
than it was when FERC issued the approximately 1,000 original 
hydropower licenses 30 to 50 years ago. Since 1986, the Commission has 
been required to give ``equal consideration'' to, and make tradeoffs 
among, hydropower generation and other competing resource needs, 
including protecting and enhancing fish and wildlife.
    Moreover, FPA authorizes federal and state agencies other than FERC 
to influence license terms and conditions, and in some instances, 
precludes FERC from altering license conditions imposed by other 
agencies. Environmental and land management laws--enacted primarily 
during the 1960s and 1970s--have placed additional requirements on 
these agencies to address specific resource needs, including protecting 
endangered species, achieving clean water, and preserving wild and 
scenic rivers.
    In addition, section 401 of the Clean Water Act--added in 1972--
requires anyone seeking a license or permit for a project that may 
affect water quality to seek approval from the relevant state water 
quality agency. States have begun to use section 401 to influence 
license terms and conditions.
    The regulations adopted by FERC under FPA also require FERC to 
involve the public in the licensing process. Public values toward 
hydropower have changed and now reflect a growing concern about the 
environmental impacts of hydropower projects.
    Changing public values, coupled with requirements to give equal or 
greater consideration to environmental concerns than to hydropower 
generation, have resulted in new license conditions intended to protect 
and enhance fish, wildlife, and other resources. For example, in an 
effort to reduce the risk to fish resources, new licenses may include 
conditions that require licensees to change minimum streamflows, 
construct fish-passage facilities, install screens and other devices to 
prevent fish from being injured or killed, limit the amount or timing 
of reservoir drawdowns, or purchase or restore lands affected by a 
project.
    Attempts to balance and make tradeoffs among competing economic and 
environmental interests and to improve the environmental performance of 
projects, while preserving hydropower as an economically viable energy 
source, have lengthened the process and made it more costly.
Participants Cannot Agree on the Need for, and Type of, Reforms to the 
        Licensing Process
    FERC, federal and state land and resource agencies, licensees, 
environmental groups, and other participants in the licensing process 
do not agree on whether further reforms are needed to reduce process-
related time and costs.
    Some participants believe that the time and money spent on project 
licensing reflect the level of complexity of the issues involved. They 
consider the process to be worthwhile as long as it results in a new 
license that is legally defensible, scientifically credible, and more 
likely to protect and enhance resources over the term of the license. 
Some of these participants also believe that recent reforms will likely 
reduce the time and costs associated with obtaining a new license and 
that additional reforms may not be necessary. For example, they believe 
that, when compared with projects using the traditional licensing 
process, projects using FERC's relatively new alternative licensing 
process are more likely to obtain licenses before their old ones expire 
and less likely to have their license decisions delayed as a result of 
administrative and judicial reviews.
    Other participants in the licensing process believe that recent 
reforms will do little to reduce the time and costs to obtain a new 
license. For example, they believe that licensees and other 
participants will not use FERC's alternative licensing process for 
projects that involve contentious issues or when participants have 
conflicting values and concerns. They also believe that, while the 
alternative licensing process may shorten the time required to obtain a 
new license, it may also be more costly than the traditional licensing 
process. However, these participants cannot agree on what further 
administrative reforms or legislative changes are needed to shorten the 
process and make it less costly.
FERC Needs Better time and Cost Data to Reach Informed Decisions on the 
        Effectiveness of Recent Reforms and the Need for Further 
        Reforms to the Licensing Process
    To reach informed decisions on the effectiveness of recent reforms 
to the licensing process as well as the need for further reforms to the 
process, FERC must accomplish two tasks.
    First, it needs complete and accurate data on process-related time 
and costs by participant, project, and process step. Currently, FERC 
does not systematically collect much of these data. For example, 
because it has not provided clear guidance to the other agencies on 
what costs they should report, FERC cannot identify other federal 
agencies' actual costs to participate in the licensing 
process.4 In addition, FERC does not request, and states 
generally do not report, their process-related licensing costs. 
Similarly, although some licensees have voluntarily reported their 
process-related licensing costs to FERC, FERC does not request 
licensees to report these costs.
---------------------------------------------------------------------------
    \4\ Hydropower Relicensing: Federal Costs Are Not Being Recovered 
(GAO/RCED00107, June 30, 2000).
---------------------------------------------------------------------------
    Second, FERC needs to identify (1) why certain projects or groups 
of projects displaying similar characteristics take longer and cost 
more to license than others do and (2) why the time and costs to 
complete certain process steps vary by project or group of similar 
projects. Similar characteristics may be project-related, such as 
whether the project is on federal land; process-related, such as 
whether FERC had to resolve a dispute during the process between the 
licensee and a federal or state agency; or outcome-related, such as 
whether the terms and conditions of a new license compromise the 
project's economic viability or environmental performance.
    Our May 2, 2001, report contained recommendations that, if 
implemented, would allow informed decisions on the effectiveness of 
recent reforms to the licensing process as well as the need for further 
reforms to the process. In its written comments on a draft of our 
report, FERC agreed that it does not systematically collect complete 
and accurate data on process-related time and costs by participant, 
project, and process step. However, it believed that it did not need 
these data to make recommendations on further reforms to the licensing 
process. Rather, its May 8, 2001, report is based on the limited data 
that were available as well as FERC's ``years of experience'' with the 
licensing process.
Observations on FERC's may 2001 Report and Recommendations
    Mr. Chairman, if FERC, federal and state land and resource 
agencies, licensees, environmental groups, and other participants in 
the licensing process agreed on whether further reforms are needed to 
reduce process-related time and costs, then the importance of good data 
to reach good decisions would be diminished. However, as FERC states in 
its May report, ``the areas of agreement tend to be overshadowed by 
disagreements'' among process participants. As a result, the 
recommendations in FERC's report reflect only the views of its staff on 
how to make the process more efficient.
    We believe that both the Commission and the Congress need to 
carefully consider the recommendations made by FERC staff. Some of the 
recommendations appear to be based on inadequate or inappropriate data 
and some may change the outcomes of the process. For example:

 The report states that the ``most effective way to reduce the 
        cost and time of obtaining a hydropower license would be for 
        Congress to make legislative changes necessary to restore the 
        Commission's position as the sole federal decisional authority 
        for licensing conditions and processes.'' However, FERC and its 
        independent predecessor (the Federal Power Commission) have 
        never had the ``sole federal decisional authority for 
        licensing.'' 5 Thus, FERC staff are asking the 
        Congress to restore an authority that the Commission has never 
        had.
---------------------------------------------------------------------------
    \5\ Prior to 1930, the Commission (then known as the Federal Power 
Commission) was comprised of three Cabinet officials, the Secretaries 
of Agriculture, the Interior, and War. 42 Stat. 1063 (1920). In 1930, 
the Commission was reorganized as a five-person body independent of the 
Secretaries. 46 Stat. 797 (1930). Throughout its history, the 
Commission's licensing authority has been subject to the mandatory 
condition provisions of what are now sections 4(e) and 18 of the 
Federal Power Act. See 42 Stat. 1065, 1073 (1920). Accordingly, FERC 
and its independent predecessor have never had the ``sole federal 
decisional authority for licensing.''
---------------------------------------------------------------------------
 The report states that changes to regulations and policies 
        ``are not an adequate substitute for legislative reform.'' 
        However, the report notes that a 1993 FERC policy to issue 
        draft environmental analyses for comment added about 6 months 
        to the relicensing process. Thus, it appears that there are 
        opportunities to reduce time and costs within the existing 
        legislative framework.
 FERC's report states that it ``focuses on relicensing of 
        existing hydropower projects, as relicenses comprise the great 
        majority of licensing proceedings currently and for the 
        foreseeable future.'' However, 14 of the 16 projects that it 
        uses to ``illustrate vividly how the dispersal of decisional 
        authority can work to paralyze a licensing proceeding'' are for 
        original licenses to construct new projects, not to relicense 
        existing ones.
 The scope of FERC's review was limited to reducing process-
        related time and costs. However, its recommendation to 
        establish ``one-stop shopping'' at FERC could affect the 
        emphasis given to protecting and enhancing fish, wildlife, and 
        other resources. Thus, any potential gains in efficiency from 
        establishing ``one-stop shopping'' at FERC would need to be 
        weighed against the policy reasons that led to separating the 
        responsibility for licensing hydropower projects from the 
        responsibility for ensuring regulatory compliance with 
        environmental and other laws.
    Mr. Chairman, this concludes my formal statement. I will be pleased 
to respond to any questions that you or other Members of the 
Subcommittee may have.

    Mr. Walden [presiding]. Thank you, Mr. Hill.
    Now, let us go to Mr. Prescott. I would like to welcome you 
to present your testimony, and thanks for being here.

                   STATEMENT OF JOHN PRESCOTT

    Mr. Prescott. Okay. Mr. Walden, members of the 
subcommittee, thank you very much for giving me the opportunity 
to appear before you to discuss the important role that 
hydropower has played and must continue to play in our Nation's 
energy policy.
    I appear before you in two capacities: As vice president of 
Generation for Idaho Power Company and as a representative of 
the hydropower industry. As a board member of the National 
Hydro Association, my testimony today reflects the sentiments 
of a thorough cross-section of the industry.
    The benefits of hydropower and its importance to our 
Nation's environmental and energy policy objectives are well 
documented. Hydropower is not only our largest renewable energy 
resource; it is low cost and efficient, and it provides 
Americans with abundant recreational opportunities, as well as 
flood control and irrigation benefits. It is also emissions-
free, which in a time of ongoing concern over greenhouse gases 
cannot be overlooked.
    As California and the West grapple with an energy supply 
insufficient to meet growing demand, it is another of hydro's 
attributes that has taken on increased importance: reliability. 
The management of the Nation's electric grid depends upon fast, 
flexible generation sources like hydro to meet peak power 
demands and to restore service after a blackout. Hydro's 
ability to go from zero power to maximum output quickly makes 
it exceptionally good at meeting changing loads and providing 
ancillary services.
    Despite these many benefits, we are in danger of losing 
hydropower capacity and operational flexibility at a time when 
it is most needed. As we face rising energy prices, energy 
shortages, reliability and pollution concerns, now is the time 
for policymakers to better incorporate hydropower into the 
Nation's energy strategy. To that end, I applaud Chairman 
Barton for holding this hearing.
    As lawmakers devise an energy strategy, I offer the 
following thoughts on how best to address the decline of 
hydropower and to encourage development of additional hydro 
capacity at existing sites, steps that would allow the country 
to increase its use of renewable, emissions-free generation in 
an environmentally compatible manner.
    Most importantly, the hydropower relicensing process needs 
to be fixed. Over the next 15 years, 240 projects in 38 States, 
nearly 29,000 megawatts of power, must undergo the FERC 
relicensing process. Idaho Power alone must relicense nearly 
1,500 megawatts before the year 2010.
    As has been well documented in congressional hearings over 
the past few years, the process suffers from dispersed 
decisionmaking authority and an inability to balance competing 
values. The bottom line is that costs, delays and conflicting 
mandates inherent in the process threaten generation capacity 
and operational flexibility. As we lose megawatts and 
flexibility, we must rely on less efficient generation sources 
that both cost more and produce greenhouse gas and other 
emissions.
    While many studies and reports have found varying levels of 
generation loss due to relicensing, we should not be haggling 
over figures. The point is that in today's tight energy 
climate, any loss in electrical generation, especially from 
such a clean, cost-efficient source, is too much.
    How did we get to this point? Why such a dysfunctional 
process? Most of it can be boiled down to one unfortunate 
reality: The process fails to properly balance the 
environmental impact of hydro projects with the crucial energy 
and non-energy values of the resource.
    Under Federal law, FERC has the responsibility and 
authority to strike a balance between power and environmental 
values. The courts, however, have interpreted the Federal Power 
Act so as to prevent any balancing from taking place. The 
courts have given Federal resource agencies the authority to 
set mandatory conditions on FERC relicenses, conditions that 
cannot be altered or changed by FERC. FERC has no opportunity 
to balance the license in the broadest public interest. The net 
result is that no one has the authority to look at the big 
picture.
    Some have suggested that the problems with the licensing 
process can be solved solely through administrative means. I 
disagree. Properly developed and implemented administrative 
remedies can help on a number of fronts and should be 
encouraged. But taken alone, administrative reforms can not 
fully address the fundamental and substantive problems with the 
process.
    Legislative fixes are necessary if we are to truly fix the 
hydroelectric licensing process. The issue of licensing 
improvement transcends partisanship. In addition to the Towns 
bill's bipartisan roster of cosponsors, both Senate energy 
packages contain hydro licensing language. The FERC 603 report 
echoes the call for legislative reform, and the Bush 
Administration's national energy plan declares licensing 
improvement to be a top energy policy priority. We are 
encouraged by the emerging consensus on this issue and look 
forward to continuing to work with Chairman Barton, Congressman 
Boucher and the entire subcommittee on enacting balanced, 
bipartisan licensing improvement measures this year.
    In closing, the hydropower industry strongly believes that 
healthy rivers and hydropower can coexist. As we look to self-
sustaining energy strategies, now is the time to better 
incorporate hydro into the Nation's energy mix. Reforming the 
license process and providing incentives for hydro development 
at existing sites can benefit hydro producers, the environment 
and consumers and is a goal that all Americans should support. 
Thank you.
    [The prepared statement of John Prescott follows:]
  Prepared Statement of John Prescott, Vice President of Generation, 
                          Idaho Power Company
    Chairman Barton, members of the Subcommittee, thank you very much 
for giving me the opportunity to appear before you today to discuss the 
important role that hydropower has played and must continue to play in 
our nation's energy policy.
    I appear before you today in two capacities. First and foremost, as 
Vice President of Generation for Idaho Power Company. Hydroelectric 
power plays an integral role in our company's generation base. In an 
average water year, Idaho Power Company's 17 hydroelectric plants 
provide approximately 60% of our generation. Perhaps equally important, 
hydroelectric power's unique ability to follow customer load allows us 
to use this resource in an efficient and comparatively low-cost manner. 
These are the paramount reasons that Idaho Power Company has been rated 
as one of the nation's lowest cost providers of electric energy, and in 
1998, we were rated as the most efficient electricity provider by 
Public Utilities Fortnightly.
    I am also here representing the hydropower industry. As a board 
member of the National Hydropower Association for the past year, I have 
participated in numerous discussions with industry colleagues and non-
industry stakeholders as to the challenges and opportunities facing 
hydropower in the 21st century. In addition, Idaho Power Company is an 
active member of the Hydroelectric Licensing Reform Task Force, a 
coalition of public and investor-owned hydropower generators drawn from 
the memberships of the American Public Power Association, the Edison 
Electric Institute, and the National Hydropower Association. As such, 
my testimony today reflects the sentiments of a thorough cross-section 
of the hydropower industry. We are also members of WaterPower: The 
Clean Energy Coalition, a group of over 660 consumer, labor, 
environmental, farming and other organizations that recognize the need 
to improve the hydro licensing process.
    Hydropower accounts for about ten percent of the nation's 
electricity and over 80 percent of its renewable energy. The benefits 
of hydropower, and its continued importance to our nation's 
environmental and energy policy objectives are well documented. 
Hydropower is not only our largest, renewable energy resource; it is 
low cost and efficient; it is a purely domestic resource; and it 
provides Americans with abundant recreational opportunities, as well as 
many flood control and irrigation benefits. It is also an emissions-
free resource, which in a time of ongoing concern over greenhouse gases 
cannot be overlooked. In 1999, hydro displaced the emissions of 77 
million metric tons of carbon; that is the equivalent of removing 62.2 
million passenger cars, nearly 50% of the current fleet, from our 
nation's roadways. In addition, emissions-free hydropower generation 
helps us avoid significant amounts of Nitrogen Oxide (NOX) 
and Sulfur Dioxide (SOX), which are major contributors to 
decreased air quality.
    As California and the West continue to grapple with an energy 
supply insufficient to meet growing consumer and industrial demand--and 
as this crisis now threatens to expand throughout the rest of the 
nation this summer--it is another of hydropower's attributes that has 
taken on increased importance: its reliability. The management of the 
nation's electric grid depends upon fast, flexible generation sources 
like hydropower to meet peak power demands and to restore service after 
a blackout. Hydropower's ability to go from zero power to maximum 
output quickly and predictably makes it exceptionally good at meeting 
changing loads and providing ancillary electrical services.
    Despite these varied benefits, supply of hydropower is waning and 
America is in danger of losing significant hydropower capacity and 
operational flexibility at a time when it is most needed. As we face 
rising energy prices, increased levels of pollution, energy shortages 
and reliability concerns, now is the time for policymakers at the 
federal level to better incorporate hydropower into the nation's long-
term energy strategy. To that end, I applaud Chairman Barton for 
holding this hearing.
    As lawmakers devise a long-term energy strategy, I offer the 
following thoughts on how best to address the decline of hydropower as 
well as to encourage development of additional hydropower capacity at 
existing sites; steps that would allow the country to increase its use 
of renewable, emissions-free generation in an environmentally 
compatible manner and to strengthen the reliability of the transmission 
system.
Hydropower Relicensing Reform
    First and foremost, the hydropower relicensing process needs to be 
fixed. Over the next 15 years, two-thirds of all non-federal 
hydroelectric capacity--nearly 29,000 MW of power (enough to serve 29 
million homes)--must undergo the Federal Energy Regulatory Commission's 
(FERC) relicensing process. This includes 240 projects in 38 states, 
much of it in western states where power supply is a major concern. 
Idaho Power alone is in the process of relicensing 1,485 megawatts 
before 2010, including the 1,167 megawatt Hells Canyon Complex.
    As has been well documented in Congressional hearings over the 
previous few years, and most recently by FERC in its Section 603 Report 
issued this past May, the licensing process suffers from dispersed 
decision-making authority and an inability to balance competing values. 
The bottom line is that costs, delays, and conflicting mandates 
inherent in the process threaten generation capacity and operational 
flexibility throughout the nation. As we lose megawatts and operational 
flexibility, we must rely on less efficient generation sources that 
both cost more and produce greenhouse gas and other emissions.
    One note on generation loss. FERC, in its 603 Report, reviewed all 
relicense proceedings since October, 1986 and found an average annual 
generation loss of 4.23%; discounting one project which it claims to be 
``unrepresentative,'' the percentage drops to a 1.59% loss. Other 
studies have found an average generation loss of nearly 8%. I don't 
think we should be haggling over figures. The point is that in today's 
tight energy supply climate, any loss in electrical generation--
especially from such a clean, cost-efficient source--is too much.
    How did we get to this point? Why such a dysfunctional process? 
While there is no shortage of explanations, most of it can be boiled 
down to one unfortunate reality: the licensing process fails to 
properly balance the environmental impact of hydro projects with the 
crucial energy and non-energy values of the resource.
    Since 1986, FERC has been required, under the Federal Power Act, to 
give ``equal consideration'' to a variety of factors when issuing hydro 
project licenses and relicenses. This balancing authority requires FERC 
not only to consider the power, economic, and development benefits of a 
particular hydro project, but also to consider energy conservation and 
the protection, mitigation of damage to, and enhancement of fish and 
wildlife. In other words, under Federal law, FERC has the 
responsibility and authority to strike a balance between power and 
environmental values.
    The courts, however, have interpreted the Federal Power Act so as 
to prevent any balancing from taking place. The courts, in effect, have 
given Federal resource agencies the authority to set ``mandatory'' 
conditions on FERC relicenses--conditions that are automatically 
attached to a final license. This means that FERC has no opportunity to 
question the basis of mandatory conditions set by the agencies.
    This would not be a problem if federal resource agencies, when 
imposing a mandatory condition, considered the various factors that 
FERC is required to examine pursuant to the Federal Power Act. However, 
this is simply not done. The net result is that no one is balancing. No 
one has the authority to look at the big picture of how hydro fits into 
our national energy policy. I go back to my earlier observation: in 
today's supply-thirsty climate, where every megawatt counts, this is a 
situation that must be remedied, and remedied soon.
    As mentioned, in an average water year hydropower accounts for 60% 
of Idaho Power's generation, with the three-dam Hells Canyon Complex 
project accounting for 75% of our total hydropower generation. Within 
this complex, the nearly 1 million-acre feet Brownlee Reservoir and 
hydropower site is the primary facility we have to follow our daily and 
seasonal peak loads. If balancing is not achieved, we run the risk of 
not only losing valuable energy, but also crucial load-following 
benefits of the resource. Additionally, our customers may lose the 
project's economic value and reservoir users a highly popular fishery. 
While we have not yet seen the mandatory condition proposals from the 
federal resource agencies--we will see them over the coming year--
recent history suggests that a final Hell's Canyon relicense will not 
reflect a balanced consideration of the public interest values of the 
project.
    Attached to my written testimony is a compilation of relicensing 
anecdotes, reflecting the recent experiences of many of our hydropower 
colleagues who have witnessed first hand the problems associated with 
the current licensing process. For example, the National Marine 
Fisheries Service last year imposed a fish passage requirement on the 
Enloe Dam project license in Washington that was contrary to the wishes 
of a Congressionally authorized regional collaborative planning 
council. Look at PacifiCorp's North Umpqua project in Oregon where the 
relicensing process took over 10 years; even though a settlement--was 
recently reached in this proceeding, licensing process--improvements 
could have resulted in smoother settlement negotiations, at far less 
cost and resulted in investments being made in environmental 
improvements rather than in study upon study upon study.
    Some have suggested that the problems with the FERC licensing 
process can be solved solely through administrative, rather than 
legislative means. I disagree. Properly developed and implemented 
administrative remedies can certainly help on a number of fronts and 
should be encouraged. But taken alone, administrative reforms can not 
fully address the fundamental and substantive problems with the 
process. Earlier this year, the six industry representatives to the 
Federal Advisory Committee (FACA) that worked with the Interagency Task 
Force towards administrative improvements to the hydro licensing 
process wrote members of this Subcommittee expressing the following 
assessment of the ITF's work product:
        ``While the [ITF] reports themselves are helpful, they do not 
        resolve the fundamental conflict inherent in the existing 
        system of government oversight of hydropower projects, nor will 
        they assure maintenance of this reliable and low-cost source of 
        electricity . . . The reforms necessary to achieve substantive 
        improvements in the licensing of hydroelectric facilities can 
        best be obtained through legislation addressing the Federal 
        Power Act.''
I wholeheartedly concur with this assessment. Legislative fixes are 
necessary if we are to truly fix the hydroelectric licensing process in 
a manner satisfactory to most stakeholders.
    As for specific suggestions on how legislation might best fix the 
licensing process, that will hopefully be a subject for legislative 
hearings before this Subcommittee in the near future. I want to note, 
however, that the issue of hydro licensing improvement transcends 
partisanship. In addition to H.R. 1832's--the Towns bill's--bipartisan 
roster of cosponsors, both Senate energy policy packages contain hydro 
licensing improvement language; the aforementioned FERC 603 report 
echoes the call for legislative reform of the hydro licensing process; 
and the Bush Administration's National Energy Policy Development Group 
Report adds its voice to those declaring hydro licensing improvement to 
be a top energy policy priority. We are encouraged by the emerging 
consensus on this issue and look forward to continuing to work with 
Chairman Barton, Congressman Boucher, and the entire Subcommittee on 
enacting balanced, bipartisan licensing improvement measures this year.
Market Incentives for Hydropower Development
    While we must act to reverse the lost hydro capacity and 
operational flexibility due to a flawed licensing process, we can also 
act to encourage the development of more, environmentally-responsible 
hydropower. The U.S. has an impressive amount of new hydropower 
potential, and it has been ignored for far too long. A Department of 
Energy (DOE) study shows there are approximately 21,000 MWs of 
potential capacity at existing dams. More importantly, much of this 
potential--over 10,000 MWs--is located in the capacity-hungry west.
    This hydro capacity sits unused largely because of the complex 
regulatory scheme described above. But, it is also undeveloped because 
there are no incentives for producers to bring new generation on-line, 
a process that is more expensive and complicated than ever. 
Historically, most legislative proposals that addressed renewable 
energy ignored hydropower and its increasingly marginal economic state 
caused by escalating regulatory costs and capacity restrictions. While 
other renewable resources have received incentives for development and 
production--sparking growth in those industries--hydropower generation 
has been on a downward trend.
    In the 107th Congress, however, there has been a new-found 
bipartisan interest in providing incentives for new hydropower 
development and efficiency upgrades at existing dams. While the costs 
clearly vary from project to project, new hydro capacity, depending on 
the type of upgrade, runs from $650 to $2,000 per kilowatt (Kw). On 
average, new hydro generation costs about 5 to 8 cents per kilowatt 
hour (KwH).
    While not the same disadvantages as those encountered by other 
renewable industries, hydro's disadvantages hold equal merit and demand 
similar policies designed to encourage the development of renewable 
sources of power. Additionally, unlike many other generation sources 
currently getting rushed through the environmental permitting process, 
upgrades at existing hydropower sites can be accomplished with little, 
if any, new environmental impacts. In fact, incremental hydropower 
development will often result in the usage of new technology that 
significantly increases the efficiency of hydropower turbines while 
bringing improvements to aquatic habitat.
    In conclusion, I would like to offer the following thoughts on the 
nexus between energy priorities and natural resources. Idaho Power, and 
the hydropower industry as a whole, take seriously its role as stewards 
of the rivers we are privileged to use. Licensees go to great lengths 
to involve stakeholders and members of the public in licensing and 
relicensing processes. These consultations take years and, without 
question, natural resource issues constitute the bulk of those 
discussions. Ultimately, the majority of direct and indirect 
expenditures are spent on environmental protection, mitigation and 
enhancement measures. Some rhetorically argue that the hydropower 
industry wants to ``roll back'' environmental regulations in this 
process. That is fundamentally absurd. With hydropower process 
improvements, resource enhancement and protection will continue. But it 
must continue in tandem with a process that also recognizes and 
protects the value of the product that is the subject of the licensing 
in the first place. We can and must achieve balance in this arena. We 
strongly believe that healthy rivers and hydropower can coexist and we 
continue to work toward that end.
    Time is short. As we look to self-sustaining energy strategies, now 
is the time for policymakers to better incorporate hydropower into the 
nation's energy mix. We urge you to craft energy policies that embrace 
this extremely valuable resource, not further contribute to its 
decline. Reforming the licensing process and providing incentives for 
new hydropower development that deploys new, advanced technology can 
benefit hydro producers, the environment and consumers and is a goal 
that all Americans should support.
    Thank you.
          What's Wrong With the Hydropower Licensing Process?
                           real-life examples
    Roughly half of all federally-regulated hydroelectric capacity--240 
projects in 38 states, representing 28,784 megawatts of electricity 
generation--is due to be relicensed by FERC in the next fifteen years. 
An inefficient licensing process that is time-consuming, arbitrary, and 
costly places all of these projects, and the future of hydropower as a 
clean, renewable energy source, at risk. The following examples, taken 
from hydro projects around the nation, illustrate some of the many 
problems associated with the current hydropower licensing process.
 arbitrary and unilateral exercise of mandatory conditioning authority
    On February 23, 2000 FERC rescinded a license previously issued for 
the 4.1 MW Enloe Dam Project in Okanogan County, Washington. Although 
FERC was in the process of engaging all parties in addressing fish 
passage issues at the dam, the National Marine Fisheries Service (NMFS) 
challenged that process as encroaching its unilateral conditioning 
authority under Section 18 of the Federal Power Act. NMFS insisted on 
imposing a fish passage requirement in the project license despite i) 
opposition to such passage by the Washington Department of Fish and 
Wildlife, the Okanagan Indian Nation, and the Canadian government; and 
ii) the desire of the Congressionally authorized Northwest Power 
Planning Council to assign financial responsibility for fish passage at 
Enloe Dam to regional entities.
    NMFS had stated that its preferred position in the proceeding was 
license denial and dam removal. By insisting on fish passage as a 
condition of the license and at the licensee's expense, NMFS not only 
acted, in the words of FERC Commissioner Massey, ``out of sync with 
regional planning,'' but ultimately prevailed in gaining denial of the 
license application. As FERC Commissioner Hebert explained in his 
concurring opinion:
          ``Unfortunately, the Commission's hope that this protracted 
        dispute could result in a mutually-acceptable agreement has 
        been undermined by the recalcitrance of a single agency...In 
        today's order, the Commission states that it no longer has the 
        discretion to continue to resist NMFS'' overtures . . .
          One party, carrying mandatory conditioning authority, and 
        focusing myopically on its own particular interest, can upset 
        the collaborative process if so inclined. To a party opposing 
        licensing, stalemate may mean victory for one party and defeat 
        to the rest of America . . .
          I view this process, where some participants, bearing veto 
        power, have more negotiating authority than others, if indeed 
        inclined to negotiate at all, as absurd. As a result, I am 
        encouraged by pending legislative efforts to rationalize this 
        process, by requiring a greater level of cooperation among 
        federal and state resource agencies. Such reform would benefit 
        consumers by forcing all parties to the table in an effort to 
        resolve such disputes in a fashion that is best suited for the 
        benefit of all Americans.''
   excessive length and cost of process/arbitrary nature of process/
            inappropriate application of agency authorities
    PacifiCorp is currently seeking a new FERC license for its eight-
dam, 185 MW North Umpqua project in Douglas County, Oregon. The company 
recently reached a Settlement Agreement with state and federal agencies 
which will be submitted to the FERC as the basis for a new license. 
Even thought a settlement has been reached, the North Umpqua experience 
points to significant flaws in the current laws governing relicensing.
    The licensing process to-date has taken over 10 years, been 
extremely arduous and cost over $42 million. The bulk of the funds 
spent on relicensing have gone to studies of environmental impacts and 
documented in a 43-volume license application and a 3-volume watershed 
analysis report. In fact, process and study costs at North Umpqua are 
more than double the cost of installing fish passage facilities at the 
project as agreed to in the settlement. Moreover, another three to four 
years of process remain before PacifiCorp can expect to receive a 
license as FERC conducts its NEPA review and the state Department of 
Environmental Quality pursues 401 certification for the project. Both 
processes will likely require the collection of yet more data and add 
to licensing costs.
    If the Federal Power Act required conditioning agencies to take a 
balanced approach in setting their demands and included some 
accountability over them, the settlement negotiations might have been 
conducted more smoothly, at far less cost and resulted in investments 
being made in environmental improvements vs. studies. A brief history 
of the licensing process follows.
    PacifiCorp initiated the process in 1992 and went far beyond the 
normal requirements for public involvement and science collection in 
the hope that the North Umpqua licensing process would become a model 
of how a utility could work collaboratively with all stakeholders. 
After submitting its relicense application in 1995, PacifiCorp 
initiated the North Umpqua cooperative Watershed Analysis with all 
interested parties to identify and address specific resource concerns 
that emerged during the relicensing process. This was a first-of-its-
kind for a hydro project. PacifiCorp and the parties then entered 
detailed settlement discussions in 1997.
    After two years of discussions, yielding little consensus, the U.S. 
Forest Service (USFS) insisted--without providing an adequate 
scientific explanation--that Soda Springs Dam (one of the eight dams on 
the project) be removed as a condition of settlement to meet objectives 
contained in the President's Forest Plan. This, despite the fact that 
removal of Soda Springs Dam would put the viability of the entire 
project at serious risk, from both an operational and economic 
standpoint, and despite there being other mitigation alternatives 
available. This also represented the first time that the Forest Service 
had indicated its intent to use its 4 (e) conditioning authorities 
under the Federal Power Act to require a dam removal. This would have 
created a broad, adverse precedent for other hydroelectric projects in 
the West located wholly or in part on Forest Service lands.
    Concerns over the precedential nature of the removal and lack of 
scientific justification caused Pacificorp to walk away from settlement 
negotiations in November, 1999. PacifiCorp re-initiated settlement 
talks in June 2000 and following a year of negotiations involving 
agency heads, an agreement was reached.
 excessive length of process/judicial call for legislative improvements
    In March, 1997, the Eugene Water & Electric Board (EWEB) received a 
new FERC license for two projects (23.2 MW combined) on the McKenzie 
River in Oregon. In the license, FERC incorporated certain fishery 
conditions prescribed by federal resource agencies under Section 18 of 
the Federal Power Act (FPA)--at a cost to EWEB of $14,000,000--but 
rejected several conditions because they did not meet the requirements 
of the FPA for ``fishway prescriptions.''
    Despite the $14,000,000 of project improvements, several interest 
groups and agencies requested an administrative rehearing of the 
license before FERC; upon denial of the requests, the parties 
challenged the license before the U.S. Court of Appeals for the Ninth 
Circuit. Among other claims, the parties contended the FPA does not 
authorize FERC to refuse to accept any condition prescribed under 
Section 18. In other words, the parties asked the court to rule that 
the resource agencies had absolute power to dictate license conditions 
under the FPA whether they met the intent of the FPA for a fishway 
prescription or not.
    In its August, 1999 decision, the court did just that--concluding 
the FPA denied FERC the authority to modify, reject, or reclassify 
prescriptions submitted by resource agencies under Section 18, even 
while noting FERC's observation that the resource agencies ``do not 
concern themselves with the delicate economic versus environmental 
balancing required in every license.'' The court went on to acknowledge 
Congressional ``failure'' to require agencies to develop improved 
``regulations, procedures or standards for implementing Section 18.'' 
The court noted that, absent Congressional action, the court was 
powerless to rewrite the statute. ``Our task,'' the opinion stated, 
``is to apply the statute's text, not to improve upon it.'' The court's 
decision means that currently only a federal court of appeals has the 
authority to determine whether a fishery condition offered by a federal 
resource agency and required to be included in a license meets the 
requirements for a ``fishway prescription'' under the FPA.
    With its hands thus tied, the court's decision will mean a remand 
of the license back to FERC to be re-written once the appeal is 
completed--8 years after EWEB first submitted its license application; 
with only the Ninth Circuit then having the authority to decide whether 
any condition prescribed by a resource agency meets the FPA 
requirements for ``fishway prescriptions.''
   conditions making project uneconomic/arbitrary nature of process/
                      insufficient impact analysis
    In 1996, during the relicensing of the Edwards Dam near Augusta, 
Maine, the US Fish and Wildlife Service (USFWS) and the National Marine 
Fisheries Service (NMFS) prescribed a fishway system on the dam to 
safeguard a few species of fish. The fishery agencies estimated this 
fishway system would cost approximately $9 million dollars while the 
licensee estimated the cost at $12 million--both of these estimates 
effectively rendered the project uneconomic. Lacking the authority to 
amend the prescription or otherwise balance it against the energy or 
other resource values of the project, FERC instead ordered the removal 
of the dam in November 1997.
    During the relicensing process, the USFWS and NMFS also recommended 
that flows of 4,500 cubic feet per second be released annually in July 
into a deep hole below the dam they determined was a spawning and 
nursery habitat for the Atlantic sturgeon. This flow recommendation had 
severe economic implications on the project since it would force the 
project to forgo power generation completely in July most years. This 
deep hole was located just below the area where the dam was eventually 
breached and this once-important spawning and nursery habitat is now 
assumed to be filled with rubble.
    The US Department of Interior and segments of the environmental 
community have hailed FERC's decision as a means of restoring a 17-mile 
stretch of the Kennebec River to its ``natural condition''. Moreover, 
certain environmental groups are now claiming that the simple act of 
removing the dam has successfully restored this section of the river 
yet no comprehensive studies are being planned to actually measure the 
success of this dam removal on the restoration of the river ecosystem.
              arbitrary nature/excessive length of process
    In an ongoing relicensing of a 35.5 MW facility in New York State, 
arbitrary fishway prescriptions have been proposed by the USFWS, at a 
cost of over $2 million. Why arbitrary?

 The blueback herring, the primary species on which the 
        prescriptions were premised, is not native to the river where 
        the project is situated.
 With an 80-foot waterfall blocking upstream fish passage, 
        there would be no migration without the man-made lock system 
        adjacent to the project.
 The project (and other hydro facilities on the river) have 
        operated without fishways for several decades--and during that 
        time the fish population has grown to over 100 million 
        annually.
    Pre-filing consultation started on this project in 1986, and a 
final license order still has not been issued. If the fishway 
prescription is included in the license along with other resource 
protection measures, the project would become economically unviable.
 arbitrary nature of process/ferc approval of inappropriate conditions
    In a recent relicensing of a Western project, the U.S. Forest 
Service imposed numerous conditions, including one that required the 
project owner to annually send the Forest Service a set payment, 
expected to cover all operation and maintenance costs associated with 
existing campgrounds in the project vicinity. The owner pursued an 
administrative appeal of this condition at the Forest Service, arguing 
that the Forest Service failed to demonstrate that most of the 
campgrounds' use was related to the project. Furthermore, the Forest 
Service did not attempt to justify the amount of the annual payment for 
the operation and maintenance costs it sought from the licensee.
    Nonetheless, FERC included the condition in the project license, 
concluding that it lacked the authority to even consider if a 
relationship between the condition and the project justified the Forest 
Service condition. Similarly, FERC was unable to reject an instream 
flow release imposed upon the project by the Bureau of Land Management, 
even though FERC summarily dismissed as inappropriate and unsupported 
the same exact amount of instream flow release recommended by the 
California Department of Fish and Game.
    After FERC issued the new license for the project, containing the 
contested condition, the owner challenged the condition at FERC and 
took the case before the U.S. Court of Appeals. Just prior to the case 
being heard and five years after the first of the two administrative 
appeals were filed with the Forest Service, the Forest Service decided 
that the operation and maintenance costs were indeed inappropriate and 
accepted an owner-proposed method for reimbursement of only those 
campground operation and maintenance costs related to the project--
approximately 1.25% of the amount originally demanded by the Forest 
Service.
ferc approval of conditions that result in ``no quantifiable benefit''/
                      excessive length of process
    After FERC asserted jurisdiction over a 70 year old, 1.2 MW project 
in New England, the project owner reached agreement with one state 
agency on the level of minimum flows to be released from the project. 
However, a resource agency from an adjacent state and the USFWS 
prescribed a minimum flow that was nearly twice the agreed upon level. 
In its final environmental assessment for the project, FERC concluded 
that the owner's minimum flow could be provided with existing project 
equipment and that there was no ``quantifiable benefit'' from requiring 
the USFWS flow level rather than the level proposed by the owner.
    However, because the recommendation was made under section 10(j) of 
the FPA, and because the recommendation appeared ``consistent with the 
FPA,'' FERC incorporated the higher minimum flow requirement in the 
license. FERC's rubber stamp approval of the USFWS 10(j) 
recommendation, along with other conditions imposed on the project, had 
the effect of reducing net revenue from the project by 60%, making the 
project economically marginal at best. (Note: Issuance of the license 
for this small project took more than 8 years.)
                     duplicative nature of process
    The Energy Policy Act of 1992 specifically prohibits federal land 
managing agencies from requiring an existing hydropower project to 
obtain a Special Use Permit. However, in a number of licenses, the 
Forest Service has taken the standard Special Use Permit terms and 
included them in the conditions submitted to FERC under section 4(e) of 
the Federal Power Act. In turn, FERC has had no choice but to impose 
these conditions on the project license. These Special Use Permit 
conditions are designed to allow the Forest Service to regulate the 
project in the same manner that FERC administers the licensed project. 
Thus, despite the Energy Policy Act prohibition, the Forest Service is 
duplicating FERC's legislative mandate to administer federally licensed 
hydropower projects.
                  conditions making project uneconomic
    In 1997, six years after the licensee filed its initial plan, FERC 
issued an order approving a mitigation and management plan for the 170 
MW Kerr Project in Montana. The FERC plan incorporated conditions 
submitted by the Department of the Interior requiring a variety of non-
operational measures, including: a fish and wildlife implementation 
strategy to be funded through a one-time payment of $12.5 million and 
annual payments of $1.27 million, a fish stocking plan, the acquisition 
of 6,800 acres to serve as replacement wildlife habitat, the 
construction of five islands to serve as waterfowl habitat and 
construction of erosion control structures.
    The FERC environmental impact statement (EIS) on the mitigation and 
management plan concluded that the conditions imposed by Interior would 
``eliminate the project's positive economic benefits.'' The EIS found 
that the project's current annual net benefits were approximately $9 
million, but that with Interior's conditions, the annual net benefits 
would be a negative $2.7 million. Not even Interior disputed that the 
conditions would reduce the project's net annual benefits by many 
millions of dollars. However, the Commission noted that ``any economic 
analysis of the impact of Interior's conditions is of at best 
tangential relevance to our decision,'' since FERC was obligated to 
impose the Interior conditions.
   conditions making project uneconomic/insufficient impact analysis/
        arbitrary nature of process/litigation as only recourse
    The 700kw Yaleville project in upstate New York is one of the 
smallest hydro facilities operated by Niagara Mohawk Power Corporation. 
In pre-filing consultation in connection with the 1988 licensing of the 
project, the USFWS raised the issue of fish passage. The agency 
recommendation was to provide for downstream passage of freshwater non-
migratory resident species, namely bass and walleye. This, despite:

 spillage over the dam provided natural passage of fish at 
        least 85% of the time;
 despite decades of hydro project operation,--an abundance of 
        bass and walleye was evident on the river both above and below 
        the project; and
 the $400,000 price tag for the agency-recommended fishway was 
        prohibitive for such a small project.
    Niagara Mohawk disputed the agency recommendation in its license 
application and FERC, in its 1991 draft Environmental Assessment (EA) 
for the project, agreed with the owner and recommended a lower cost 
fish protection alternative. USFWS, after failing to sway FERC away 
from its position in dispute resolution proceedings, responded by 
prescribing the downstream passage fishway under its Section 18 
mandatory conditioning authority.
    FERC denied the fishway prescription in its 1992 license order 
because it did not meet the day's definition of ``fishway'' [at the 
time, a fishway had to serve the purpose of passing fish whose life 
cycle depended entirely on migration past the hydro facility--which was 
not the case with the Yaleville bass and walleye.] A broader 
``fishway'' definition was established with the passage of the Energy 
Policy Act of 1992; accordingly, FERC had to rescind its prior denial 
and require Niagara Mohawk to install the fishway--despite the lack of 
biological basis and the fact that its cost would negate the economic 
operation of the project.
    Niagara Mohawk promptly appealed the FERC order. Negotiations with 
USFWS ultimately led to an agreement to install a less expensive 
fishway design (at a cost one-tenth of that originally prescribed.) If 
the owner had not pursued an aggressive litigation action, USFWS would 
likely never had agreed to negotiate. Litigation, in this case, spawned 
reason; but only after more than 8 years of licensing process and a 
cost to the owner of nearly $300,000.
                  conditions making project uneconomic
    In 1997, FERC issued a license for a 70 MW project in Washington 
state. In the text of the license itself, FERC noted that the 
prescribed resource agency conditions would result in a yearly 
operating loss of over $6.5 million for the project owner. Indicating 
that the project as licensed would not be ``economically beneficial'', 
FERC issued the license with the conditions, leaving it to the owner to 
``make the business decision whether [to operate the facility] in view 
of what appear to be the net economic costs.''

    Mr. Walden. Thank you, Mr. Prescott.
    We now turn to Ms. Birnbaum, the director of Government 
Affairs for American Rivers. Welcome. We look forward to your 
testimony.

               STATEMENT OF S. ELIZABETH BIRNBAUM

    Ms. Birnbaum. Thank you. Good afternoon, Mr. Chairman and 
Congressman Boucher, members of the subcommittee. My name is 
Liz Birnbaum. I am the director of Government Affairs at 
American Rivers, the national river conservation organization 
with more than 30,000 members nationwide. We also Chair the 
Hydropower Reform Coalition, a consortium of more than 70 
conservation and recreation organizations from around the 
country, with a combined membership of more than 800,000.
    Our organizations strongly oppose any efforts to diminish 
environmental protections in hydropower relicensing, either 
directly or through misguided process reforms. While we have 
participated in and encouraged administrative efforts to make 
the licensing process more efficient, we strongly disagree with 
the proposition that the faults in the process lie with State 
and Federal natural resource agencies. It is clear to us that 
the vast majority of the remaining inefficiencies in licensing 
lie elsewhere.
    The two major problems are FERC's unwillingness to develop 
a single, cooperative environmental review process involving 
all State and Federal agencies, and the licensees incentive, as 
discussed by Congressman Dingell earlier, to delay relicensing 
and withhold necessary information regarding environmental 
impacts of their projects.
    I would like to talk about four basic themes today: First, 
protecting the public trust resources; second, opposing 
rollback of environmental protections; third, taking a close 
look at FERC's analysis; and fourth, ways to improve the 
process without causing harm.
    First, I think that all participants in the process will 
acknowledge that hydropower relicensing is a natural resource 
issue, a rivers issue, not just an energy issue. In fact, 
President Bush's energy plan acknowledges and catalogs the 
impacts of hydropower dams on natural resources. The 
improvements and changes made through relicensing will have 
huge implications for hundreds of species, thousands of river 
miles and millions of dollars in recreational opportunities for 
decades to come. In contrast, these decisions have relatively 
small impacts on energy generation, electric rates or industry 
viability.
    By requiring dam owners to build passage for fish, protect 
critical riparian habitat, adjust river flows, and provide 
recreational access and opportunity, we can protect and restore 
valuable fisheries, native species diversity, recreational 
amenities and natural ecosystem functions. At the same time, we 
can enhance economic opportunities such as recreation, tourism 
and ecological services. Because original licenses were issued 
before the enactment of modern environmental statutes and prior 
to our understanding of the impacts of dams on river 
ecosystems, virtually none of these dams meets modern 
environmental standards before relicensing.
    If awarded a license, utilities can monopolize a river for 
a half a century with little oversight and no motivation to 
make environmental improvements. We must take this once-in-a-
lifetime chance to set conditions that require hydro operators 
to modernize the way they operate their dams on our rivers.
    In developing the balance of authority in the Federal Power 
Act, Congress determined that some basic environmental 
protections must be afforded at every dam. Expert Federal and 
State resource managers established conditions based on 
substantial evidence. Just as there is a ceiling on coal plant 
emissions under the Clean Air Act, there is a floor above which 
FERC can balance license conditions in the public interest.
    Both fish passage and Federal lands protections have been 
part of the licensing process since the enactment of the 
Federal Power Act in 1920. Water quality is a responsibility 
delegated to the States. Section 401 of the act ensures that 
private hydro projects will not interfere with State standards. 
The Supreme Court has confirmed that these standards may be 
numeric or narrative and include chemical, physical and 
biological parameters.
    State and Federal agencies have significant expertise in 
the relicensing area. They work in the field on a specific 
river as opposed to FERC staff who spend most of their time in 
Washington. There is little reason to believe that 
consolidation with FERC would either make the process faster or 
improve the outcomes.
    I will make just a couple of observations on the 603 
report. First, we agree with GAO's conclusion that until FERC 
does a better job collecting data on the cost and timing of its 
process, FERC will not be able to reach informed decisions on 
the need for further administrative reforms or legislative 
changes. This conclusion makes it difficult to rely on any of 
the statistical information in the 603 report.
    Second, it seems clear that FERC saw this report to 
eliminate shared jurisdiction with other agencies. The 
suggestion on page 6 of the report that Congress should, quote, 
``restore'' the Commission's position as the sole Federal 
decisional authority ignores the history and structure of the 
Federal Power Act since 1920. The Commission has never been the 
sole Federal authority on hydro licenses. And, again, the 
entire report must be viewed in light of this agenda.
    We do believe that further administrative reforms can 
improve the way we license hydropower dams without upsetting 
the existing balance of agency decisionmaking. First, to ensure 
the relicensing process is efficiently implemented, State and 
Federal agencies must have sufficient staff resources and 
training. For example, in the State of Alabama, licenses for 12 
dams on 3 major rivers will expire by 2007. Currently, the Fish 
and Wildlife Service has only one staff person to cover this 
entire area. This situation is not unique.
    Second, collaborative processes should be encouraged. 
Elements of FERC's alternative licensing process should be 
incorporated into FERC's traditional licensing process wherever 
possible. Third, cooperation among FERC and State and Federal 
resource agencies will greatly improve the efficiency of the 
relicensing process. Unfortunately, FERC has been reluctant to 
implement a cooperative environmental analysis structure with 
the other agencies.
    The good news is that relicensing provides significant 
protection to rivers at a low cost to power production. 
According to FERC's own report, relicensing has resulted in 
average per project reduction in generation of only 1.6 
percent. Such few losses in relicensing over the next 10 years 
would result in a 0.04 percent reduction in the Nation's 
overall annual generation. The losses in generation are 
comparable with those caused by installing a scrubber on the 
smokestack of core 5 plant, in fact.
    Being a good environmental steward is a legitimate cost of 
doing business. Unlike other industries, such as offshore oil 
development, mining or timber, hydropower licensees pay nothing 
for the use of public resources--our rivers. They are not 
required to post a bond. After 30 to 50 years, the initial 
capital investment in these projects is fully amortized. The 
only costs left are basic operation and maintenance, the lowest 
of any electricity source, and environmental protection 
measures. Asking that these dams make some small investment in 
environmental quality after decades of profitable operation is 
a reasonable and minor request. Paying for these changes 
continues to leave hydropower as the cheapest source of 
electricity nationwide.
    [The prepared statement of S. Elizabeth Birnbaum follows:]
  Prepared Statement of S. Elizabeth Birnbaum, Director of Government 
                        Affairs, American Rivers
                              introduction
    American Rivers, a national river conservation organization with 
more than 30,000 members nationwide, strongly opposes any efforts to 
diminish environmental protections in hydropower licensing either 
directly or through misguided process reforms. These comments are also 
joined by the Hydropower Reform Coalition. The Hydropower Reform 
Coalition is a consortium of more than 70 conservation and recreation 
organizations from around the country (see attachment). The Coalition 
was formed in 1992 with the purpose of improving river health and 
recreational opportunities through the licensing, relicensing, and 
regulatory enforcement of hydropower dams under the jurisdiction of the 
Federal Energy Regulatory Commission (FERC). Coalition members are 
national, regional and local conservation organizations, and together 
have a combined membership totaling more than 800,000.
    I would like to talk about four basic themes today, geared 
primarily toward industry-supported legislative proposals, FERC's 
recently released report to Congress pursuant to Section 603 of the 
Energy Act of 2000, and the Administration's energy plan released in 
May:

1. Protect our public trust resources--Hydropower harms rivers, but a 
        strong process for relicensing can result in significant 
        improvements to environmental quality;
2. Oppose environmental roll-backs--The current balance of authorities 
        in hydropower relicensing is appropriate and effective and 
        proposed changes to that balance threaten environmental 
        quality;
3. FERC's analysis must be closely scrutinized--The Commission's recent 
        603 Report to Congress is flawed, reaches poor conclusions, and 
        illustrates FERC's quest for jurisdictional expansion; and
4. Improve the process without causing harm--The Commission should 
        improve licensing through administrative changes that take a 
        holistic approach that acknowledges multiple authorities and 
        improve environmental quality. Otherwise, Congress should 
        require FERC to do so.
    This testimony does not directly address the specifics of 
legislation before the Committee such as H.R. 1832, ``The Hydroelectric 
Licensing and Incentives Act of 2001,'' because of the rapidly changing 
nature of the debate. Instead I will focus on basic themes and 
overriding elements of the debate regarding regulation of hydroelectric 
power.
                    hydropower impacts public rivers
    Hydropower relicensing is a natural resource issue--a rivers 
issue--not simply an energy issue. The improvements and changes made 
through relicensing at hydropower dams will have huge implications for 
hundreds of species, thousands of river miles, and millions of dollars 
in recreational opportunities for decades to come. In contrast, these 
decisions have a relatively small impact on energy generation, electric 
rates, or industry viability.
    American Rivers and members of the Hydropower Reform Coalition are 
not anti-hydropower. We simply wish to ensure that these dams are 
operated to protect and restore river resources using best available 
technologies and best management practices. While decommissioning is a 
popular topic these days, we believe that dam removal will be the 
exception and not the rule.
    As early as 1908, President Teddy Roosevelt understood the need to 
safeguard our nation's rivers and helped to devise a system of periodic 
review to protect these national treasures.
          ``The public must retain control of the great waterways. It 
        is essential that any permit to obstruct them for reasons and 
        on conditions that seem good at the moment should be subject to 
        revision when changed conditions demand.''
    More than 75 years later, the 9th Circuit Court of Appeals in 
Yakima Indian Nation v. FERC found that:
          ``Relicensing is more akin to an irreversible and 
        irretrievable commitment of a public resource than a mere 
        continuation of the status quo. Simply because the same 
        resource had been committed in the past does not make 
        relicensing a phase in a continuous activity. Relicensing 
        involves a new commitment of the resource . . .''
    The impacts of hydropower dams on public trust resources are well 
known and well documented. The President's own plan acknowledges and 
catalogues the impacts of hydropower dams on natural resources.
          ``Hydropower, although a clean energy source, does present 
        environmental challenges. Unless properly designed and 
        operated, hydropower dams can injure or kill fish, such as 
        salmon, by blocking their passage to upstream spawning pools. 
        Innovations in fish ladders, screens, and hatcheries are 
        helping to mitigate these adverse impacts. Ongoing dam 
        relicensing efforts are resulting in community involvement and 
        the industry's application of the latest technologies to ensure 
        the maintenance of downstream flows and the upstream passage of 
        fish. These efforts also have been successful in identifying 
        and removing older, nonfunctioning dams and other impediments 
        to fish movements.'' (President's Plan, 3-8)
    By requiring dam owners to build passage for fish, protect critical 
riparian habitat, adjust river flows to conform to a more natural 
pattern, and provide recreational access and opportunity, we can 
protect and restore valuable fisheries, native species diversity, 
recreational amenities, and natural ecosystem functions. At the same 
time we can enhance economic opportunities such as recreation, tourism, 
and ecological services. Because original licenses were issued before 
the enactment of modern environmental statutes and prior to our 
understanding of the impacts of dams on river ecosystems, virtually 
none of these dams meets modern environmental standards before 
relicensing.
    The widespread recognition of these environmental impacts 
demonstrates a need for a careful review process that addresses some of 
the sins of the past. If awarded a license, utilities can monopolize a 
river for a half a century with little oversight and no motivation to 
make environmental improvements. It's perfectly reasonable that we take 
this once-in-a-lifetime chance to set conditions that require hydro 
operators to modernize the way they operate their dams on our rivers.
                relicensing--an important balancing act
    Because rivers are public resources with many competing interests 
and significant environmental issues, the licensing process for 
hydropower dams involves multiple stakeholders. Unlike most electricity 
generating technologies, hydropower does not have ``end of pipe'' 
standards to ensure that the dam's operations do not unduly damage the 
environment. This is because every dam and every river is different, 
and generic standards cannot be applied to each project. The Federal 
Power Act (FPA), although commonly considered an energy statute, also 
occupies an important role in environmental protection. The statute was 
amended in 1986 to require FERC to give ``equal consideration'' to 
power (electricity generation) and non-power (fish and wildlife 
protection, recreation, etc.) benefits of the river. The economics of 
the hydropower facility should be taken into account by FERC in this 
balancing process.
    In developing this balance, Congress determined--and rightly so--
that some basic environmental protections must be afforded at every 
dam, and should not be balanced away to promote cheap hydropower. Under 
these statutory requirements, expert federal and state resource 
managers establish conditions based on substantial evidence to protect 
public trust resources. These basic protections form a floor above 
which FERC can balance license conditions in the public interest.
    Sometimes referred to as mandatory conditions, these requirements 
assure that:

(1) Fish can be passed upstream and downstream of a dam (FPA Section 
        18);
(2) If the private dam is located on federally owned land, the multiple 
        purposes of the federal land are protected (FPA Section 4(e)); 
        and
(3) The dam complies with state-developed water quality standards (CWA 
        Section 401).
    Both fish passage and federal lands protection have been part of 
the relicensing process since enactment of the Federal Power Act in 
1920.
    The current structure of the Act, which sets fishways apart as a 
special consideration, is in keeping with the law and practice that 
came to us from Europe at the time of settlement. Requiring millers--
dam owners--to provide fishways at their own expense dates back many 
hundreds of years, based on the recognition that fish are equally 
important to commerce.
    The provision under Section 4(e) of the Federal Power Act that 
grants authority to land management agencies to ensure that projects on 
their lands meet current management goals and objectives is simple and 
is based on common sense. Projects that are located on federal or 
tribal lands are already getting the benefit of cheap rent. In order to 
adequately manage the lands entrusted to them, federal land management 
agencies must have a say over how these projects are operated.
    The protection of water quality is a responsibility that has been 
delegated to the states under the Clean Water Act (CWA). Section 401 of 
the act ensures that private hydro projects will not interfere with 
state standards, by requiring that each federally licensed project 
receive a certification from the state where it is located, 
demonstrating that the project is consistent with the standards, 
including the designated uses for each water body. The Supreme Court 
has confirmed that standards may be numeric or narrative and include 
chemical, physical, and biological parameters.
    Any effort to shift these responsibilities to FERC would be 
inefficient and would fundamentally change the standards upon which we 
base these decisions. State and federal agencies have already developed 
significant expertise in the relicensing arena and work in the field on 
a specific river as opposed to FERC staff who spend most of their time 
in Washington. Because FERC's mandate is ``equal consideration,'' these 
basic environmental protections would be assured only if they did not 
affect a utility's bottom line. There is little reason to believe that 
consolidation with FERC would improve the process in any event.
               facts don't support the claims of a crisis
    If we are worried about hydropower's impact on the environment, 
then where do we turn for energy? The good news is that the benefits 
derived from relicensing provide significant protection to rivers with 
a low cost to power production. According to FERC's own report, 
relicensing has resulted in an average per project reduction in 
generation of only 1.6%. Based on this track record, we can reasonably 
expect a similar loss from projects due to be relicensed over the next 
ten years (these represent 2.5% of the annual generation of the US). 
Such losses in relicensing would result in a 0.04% reduction in the 
nation's overall annual generation. In any case, the amount of ``lost'' 
generation is significantly less than the 5% average fluctuation of 
energy demand caused by factors such as weather, fuel prices, and 
advances in technology.1 These losses in generation are 
derived from comparing a baseline of operation that had NO 
environmental conditions to one with modern environmental standards--
the losses in generation are comparable with those caused by installing 
a scrubber on the smokestack of a coal-fired plant. We need not trade 
healthy rivers for power production. We can have both.
---------------------------------------------------------------------------
    \1\ The mean net generation of electric utilities and non-utility 
power producers for 1990 to 1996 is 3,203,998 million kilowatt-hours, 
with a standard deviation of +/-159084.6 million kwh or +/-4.96%.
---------------------------------------------------------------------------
    Being a good environmental steward is a legitimate cost of doing 
business. Should the federal government guarantee profitability for 
hydropower utilities? If a project is already unprofitable because of 
market forces or because it is run poorly, should it be exempted from 
any environmental conditions? The answer to these questions is clearly 
no. According to the courts, ``There can be no guarantee of 
profitability of water power projects under the Federal Power Act; 
profitability is at risk from a number of variable factors, and values 
other than profitability require appropriate consideration.'' 
2
---------------------------------------------------------------------------
    \2\ Wisconsin Public Service Corp. v. FERC, 32 F.3d 1165, 1168 (7th 
Cir. 1994)
---------------------------------------------------------------------------
    Unlike other industries such as offshore oil development, mining, 
or timber, hydropower licensees pay nothing for the use of public 
resources--our rivers--and are not required to post any kind of bond to 
ensure that at the end of the projects useful life there is money to 
properly dispose of it. After 30 to 50 years, the initial capital 
investments in these projects are fully amortized. The only costs left 
to the licensee are basic operations and maintenance (the lowest of any 
electricity source) and environmental protection measures. Asking that 
these dams make some small investment in environmental quality after 
decades of profitable operation is a reasonable and minor request. 
Paying for these changes continues to leave hydropower as the cheapest 
source of electricity nationwide.
    It is simply a false threat to suggest that dams are being 
surrendered or abandoned due to the cost of environmental regulation. 
Since 1996, only three operating licenses have been surrendered--each 
because the facilities fell into disrepair or were damaged by flooding. 
According to FERC, since1993 ``no licensee has refused to accept or 
surrender their license citing project economics.'' 3
---------------------------------------------------------------------------
    \3\ Written supplemental testimony of Doug Smith, FERC General 
Counsel, before the Senate Energy and Natural Resources Committee, 10/
27/99
---------------------------------------------------------------------------
    The Administration's own energy plan confirms that the principal 
factors limiting hydropower development have nothing to do with 
environmental regulation. The President's report explains that, 
``Hydropower generation has remained relatively flat for years. The 
most significant constraint on expansion of U.S. hydropower generation 
is physical; most of the best locations for hydropower generation have 
already been developed. Also, the amount of hydropower generation 
depends upon the quantity of available water. A drought can have a 
devastating effect on a region that depends on hydropower. In fact, 
this year's water availability has been a contributing factor in 
California's electricity supply shortages.'' (President's Plan, 5-18)
    In the scramble to find a magic bullet for the energy crisis, we 
should be careful not to over-rely on our nation's already troubled 
rivers. Through careful and deliberate evaluation involving expertise 
of a range of agencies, we can bring hydropower dams up to modern 
environmental standards without compromising power generation.
                    solutions in search of problems
    Over the past several years, a number of legislative proposals have 
been put forward by members of the electric utility industry and most 
recently by FERC. We have consistently opposed those efforts. The 
common element of those reform bills has been to blame the resource 
agencies for costs and delays and to consolidate greater authority with 
FERC. We believe that these reforms address the wrong problem and 
therefore offer a poor solution to inefficiencies with hydropower 
regulation. Until recently, these proposals have been based on little 
more than anecdotal evidence and industry assertion. However, the 
publication of FERC's 603 Report offers new data and presents the first 
comprehensive look at the relicensing process in several years, 
offering little rigorous evidence or statistical verification for the 
claim that resource agency participation in the process creates major 
costs and delays.
    Without going into great detail, let me offer a brief critique of 
the Commission's report--both its analysis and its recommendations. I 
will refrain from addressing specifics of the legislative proposals in 
this testimony but instead focus on basic themes and conclude with 
several recommendations that could require Congressional action.
                     critique of ferc's 603 report
    In November 2000, Congress required FERC within six months ``to 
undertake a comprehensive review of policies, procedures, and 
regulations for the licensing of hydroelectric projects to determine 
how to reduce the cost and time of obtaining a license.'' Congress 
specified action by the Commission, but the report filed in May 2001 
was explicitly a product of Commission staff (Report pg. 5). While it 
is entirely appropriate for staff to assist the Commission in the 
development of this report, we are troubled by the fact that the 
persons with decision-making authority--the Commissioners--have no 
ownership of this document.
    Congress also required the Commission to consult with other 
appropriate agencies, yet no draft was provided to those agencies 
despite repeated pleas for cooperation. Although FERC includes agency 
comments in its appendix (as well as those from members of the public), 
it does not address these recommendations individually or provide any 
explanation of the consultation process.
    We are also troubled by an April report by the Government 
Accounting Office (GAO) which strongly criticized the Commission for 
failing to keep adequate records of its regulatory 
activities.4 According to GAO's report, until FERC does a 
better job collecting data on the cost and timing of its process, 
``FERC will not be able to reach informed decisions on the need for 
further administrative reforms or legislative changes to the licensing 
process.'' (pg. 17) In response to criticisms about not having adequate 
information to make decisions about policy, FERC responded ``The 
primary mission of the Commission with respect to license applications 
is the processing of applications for the purpose of determining what 
outcomes best serve the public interest, not the gathering and 
processing of data documenting the process.'' (pg. 24) It is hard for 
us to understand how FERC is able to draw reasoned conclusions about 
whether it is fulfilling its mandate or respond to the Congressional 
report requirement without sound data.
---------------------------------------------------------------------------
    \4\ Licensing Hydropower Projects: Better Time and Cost Data Needed 
to Reach Informed Decisions About Process Reforms, U.S. General 
Accounting Office GAO-01-499, May 2001.
---------------------------------------------------------------------------
    In light of the GAO's indictment of FERC's data and record keeping, 
let me highlight several conclusions in FERC's report about timing and 
cost, some of which appear reasonable, others suspect.
Time data
    FERC's data on timing of the relicensing process appear more 
reliable than its information on costs--although as GAO pointed out, 
none of FERC's information can be relied upon to draw conclusions about 
the causes for delays or costs. It is clear from the report that there 
are delays in the relicensing process. However, the report suggests 
that Section 4(e) and 18 requirements by the federal resource agencies 
are not a major cause for relicensing delays (Report pg. 38). This is 
supported by an independent analysis by the Department of the Interior, 
which draws the same conclusion. The report does identify state 
agencies as being associated with significant delays, but it fails to 
show whether these delays are within the sphere of influence of those 
agencies or whether they are a victim of industry procrastination and 
delay. Other evidence would suggest the latter.
    We do know that license applicants have caused significant delay of 
the relicensing process by failing to provide complete license 
applications. Of the 157 relicensing applications filed by industry in 
1993, only nine provided sufficient scientific information about 
project impacts, forcing FERC to issue hundreds of additional 
information requests in the other 148 cases.5 The need to 
conduct further studies to complete their applications was a 
significant reason that there were major delays in these relicensings.
---------------------------------------------------------------------------
    \5\ Barnes, FERC's ``Class of '93'': A Status Report, Hydro Review 
(Oct., 1995).
---------------------------------------------------------------------------
    FERC's own timeframes appear to be lengthy and contribute to delay, 
although the 603 Report is silent on FERC's own responsibility. For 
instance, the median time for processing an application until it is 
``ready for environmental analysis'' is 18 months. This leaves only 6 
months to issue a draft and final NEPA document before the project 
license expires.
    FERC's median time to respond to requests for administrative appeal 
or rehearing is 13.6 months, with a minimum of 6 months and a maximum 
of 62 months--more than 5 years. Other types of petitions also go 
unaddressed by the Commission for months or years. For instance, in one 
case environmental groups filed a petition to the Commission to 
initiate consultation under Section 7 of the Endangered Species Act 
four years ago and have yet to receive any response. In these 
situations, parties are prohibited from seeking judicial review until 
FERC acts, but cannot force FERC to act. In the meantime the 
environment continues to be harmed and legislative interpretations go 
unanswered.
Cost data
    FERC's section on costs is even more problematic. The report 
considers costs of the relicensing process to be limited to only those 
of the licensee and the agencies. They do not consider the cost to the 
public whether due to direct participation, or through the attendant 
impacts to the environment. They also offer no measure of what costs 
should be measured--no standard of analysis.
    The 603 legislative language does say that the report should 
address ``. . . how to reduce the cost and time of obtaining a 
license.'' However, the statute does not define cost, and although one 
could contend that the term ``obtaining a license'' justifies limiting 
the report to the private costs incurred by the applicant, it hardly 
seems in the public interest or in the interests of good government to 
ignore the costs to the American public. Further, and perhaps more 
troublesome, the staff did not confine its analysis to the costs 
incurred by the license applicant alone; the staff addressed costs 
incurred by the Federal agencies. Since these non-licensee costs are 
evaluated, the report should also have considered costs to other non-
licensees and to the environment.
    Cost is closely linked to time. Due to the lengthy term of original 
hydropower licenses those issued before the environmental reform era 
have been largely insulated from the responsibility of paying for the 
environmental cost that it imposes on society. No other major source of 
power--coal, nuclear, gas, or oil--has been so privileged. All these 
others have confronted their environmental obligations, and begun to 
internalize such costs. Congress has designated the issuance of a new 
hydropower license as the time when this maldistribution of costs and 
responsibilities is to be corrected.
    Delays in the process often save the project owners money in the 
short-run by maintaining status quo terms and conditions that allow the 
postponement of expenditures for mitigation. These savings come at an 
enormous expense to the environment, the public, and the tribes because 
of delayed mitigation, and provide a perverse incentive on the part of 
licensees to drag their feet and stonewall. Thus, it is often in the 
interest of the public and the environment to minimize licensing time--
but finding ways to make the process more efficient should not override 
the need to protect other public interests in public resources.
    FERC's main evidence in support of its recommendation for ``one-
stop shopping''--eliminating mandatory conditioning by other federal 
agencies--is the fact that projects with mandatory conditions incur 
higher mitigation costs per kilowatt of capacity. However, consistent 
with the criticisms outlined in the GAO report, this turns out to be a 
very superficial analysis. Do the two groups of projects analyzed 
(those with mandatories and those without) display any other 
differences? Are projects without mandatories smaller? Less 
controversial? Have they done less damage to the environment? In order 
to make any sense out of these numbers, one would have to organize the 
projects so that the only significant difference between the two groups 
is that one group had mandatory conditions and one did not. In any 
case, one must question whether FERC is suggesting that it would 
dramatically reduce those costs if it were the agency in charge? How 
would such efficiencies be found? Would that mean a reduction in 
environmental protection? FERC offers no specifics as to how the 
Commission would reduce costs to licensees but still maintain the same 
level of environmental protection.
Clean Water Act
    In its 603 report recommendation on Clean Water Act Section 401, 
FERC demonstrates a complete misunderstanding of the Clean Water Act 
and a total disregard for state delegated authority. Water quality is 
inextricably linked to water quantity. The Clean Water Act requires the 
protection of physical, chemical and biological components of a water 
body. Protection of ``designated uses'' is a fundamental component of 
the Clean Water Act. Designated uses ensure that waters will be 
``fishable, swimmable, and boatable.'' Yet the Commission advocates 
limiting the definition of ``clean water'' to apply to only a few, 
simple parameters, excluding water quantity and designated uses.
    FERC's proposal to weaken the State's authorities under the CWA is 
an attempt to take away state's rights, in direct conflict with 
Congress's intent and the US Supreme Court's rulings. (This was 
mentioned above but is worth repeating.) The 603 Report goes so far as 
to suggest that, ``Staff has no reason to think (state conditions) 
costs are balanced by measurable additional protection of the 
environment or other public benefits.'' This is a fairly sweeping 
indictment of state delegated authority and shows little respect for 
the values embodied in state water quality goals and standards.
    CWA delays are not always the fault of state agencies. As with 
licensing delays generally, responsibility often lies with the 
applicants who file for certification at the wrong time, or without 
proper information to allow full review of the project and its effects 
on water quality and quantity. Applications are often withdrawn due to 
the applicant's poor preparation, causing unnecessary delays. 
Applicants should be allowed to file for certification only if all 
necessary information is provided at the time of filing.
One stop shopping--A common theme but a bad idea.
    At no time in its history has the Commission had sole decision-
making authority in hydropower licensing. The Federal Power Act has 
always been clear. The courts have consistently confirmed this 
plurality of decision-making over the past 10 years. The problem is not 
the multiple actors but FERC's unwillingness to cooperate and cede 
authority.
    FERC has not demonstrated itself to be a great environmental 
steward. This was a primary reason for the amendments to the Federal 
Power Act in 1986. They don't have expertise equal to the agencies, 
they lack intimate local knowledge, their mandate is different, and 
their track record is poor. Contrary to FERC's 603 Report assertion 
that they accept 95% of fish and wildlife recommendations, a 1997 
University of Michigan study showed that FERC rejected or modified 35% 
of agency fish and wildlife recommendations.
    In relying on FERC to do the final balancing analysis on license 
issuance, Congress did not intend the Federal Power Act Section 10(a) 
to be a trump card over other applicable sections of the FPA or other 
laws, and it should remain subject to other legal standards. FERC over-
relies on what it characterizes as ``the public interest,'' but is 
little more than best professional judgment clouded by institutional 
bias. The Commission's decisions are often made in a black box and are 
arbitrary and capricious.
    No regulatory process is perfect and this one is no exception. Many 
in the environmental community believe that there should be stronger 
environmental conditions at hydropower projects. Many in the industry 
believe that they should be weaker. Whichever position one believes, 
the past few years of legislative proposals and most of the 
recommendations in FERC's 603 report will only make matters worse.
                  ongoing improvements to relicensing
    Numerous administrative reforms can make incremental improvements 
to the way that we license hydropower dams that do not place blame on 
one sector, and that meet at least some of the interests of all 
stakeholders.
    Provide Adequate Resources for Agency Participation--To ensure that 
the relicensing process is efficiently implemented, state and federal 
natural resource agencies must have sufficient staff, resources and 
training to enable productive involvement in individual relicensings. 
At present, many of the relevant state and federal agencies do not have 
sufficient staff dedicated to relicensing. As a result, a range of 
individuals (few of whom are trained in the relicensing process) may 
participate in different parts of a relicensing proceeding as time 
allows, or the appropriate staff is overburdened and cannot spend the 
time to conduct an adequate review of the environmental needs at the 
site or participate constructively in the relicensing. Because of the 
complex nature of the proceedings, and because of the new, more 
productive trend toward collaborative relicensing efforts, a consistent 
presence of qualified staff with an appropriate workload would make 
agency efforts more efficient and productive.
    In the state of Alabama, licenses for 12 dams on three major rivers 
will expire by 2007. Relicensing these projects will involve regular 
meetings, extensive studies, and detailed negotiation. Currently, the 
US Fish and Wildlife Service, which has significant statutory 
responsibilities for participating in this process, has only one staff 
person to cover this area. His situation is not unique. Without 
additional resources, there is a risk of inefficient or incomplete 
participation on the part of USFWS and potential disruption or delay in 
the process. This can be avoided with additional resources.
    One potential solution is Section 1701(a) of the Energy Policy Act 
of 1992, which provides authority for FERC to reimburse resource 
agencies for their costs associated with licensing FERC projects. The 
provision calls for FERC to pass these costs on to licensees through 
annual fees. Since 1992, FERC has been collecting fees from licensees 
for some of the federal resource agency relicensing expenses but this 
money has not found its way back to these agencies. Instead, it has 
gone to the Treasury where these reimbursements to federal and state 
resource agencies have not been made available through annual 
appropriations from Congress. This system is not working. To provide 
adequate resources to these agencies that can facilitate more efficient 
relicensings, this provision of law should be implemented so that 
monies collected on behalf of state and federal natural resource 
agencies are reimbursed directly to those agencies.
    Collaboration Not Confrontation--Since the codification of FERC's 
rules on the alternative relicensing or collaborative process, an 
increasing number of projects have reached successful settlement 
leading to positive project economics and greater environmental 
protection. Throughout FERC's 603 Report, Commission staff touts their 
Alternative Licensing Process (ALP) as a model for effective 
relicensing. In an independent evaluation of the costs of hydropower 
relicensing, the Electric Power Research Institute (EPRI) found that on 
average, savings of 20 to 50 percent can be realized by using a 
collaborative approach. EPRI also found that the settlement process, on 
average, leads to reduced mitigation costs of 5 to 20 
percent.6 Elements of the alternative process should be 
incorporated into FERC's traditional licensing process wherever 
possible and licensees should be encouraged to work collaboratively 
with other stakeholders.
---------------------------------------------------------------------------
    \6\ EPRI, Hydro Relicensing and Mitigation Cost Data, Excerpted 
from EPRI Report TR-104858, Water Resource Management and Hydropower: 
Guidebook for Collaboration and Public Involvement (Dec., 1995).
---------------------------------------------------------------------------
    While collaboration can be good for everyone, as with most things, 
it must be done well. In addition to the many success stories, there 
are also some examples of hydropower operators that give an appearance 
of collaboration but fail to follow through on many of the most 
critical elements of this new technique. Often characterized as 
``hybrids,'' such processes can be as resource- and time-intensive in 
the early stages as the alternative process but fail to yield similar 
successes over time because mistrust among participants leads to 
litigation. This has been the case in a case in Hells Canyon on the 
Snake River in Idaho.
    Increase Cooperation and Coordination among FERC and Resource 
Agencies--Cooperation among FERC and state and federal resource 
agencies will greatly improve the efficiency of the relicensing 
process. Under a charter signed in October 1998, the four principle 
federal agencies involved in relicensing--FERC, Interior, Agriculture, 
and Commerce--formed an Interagency Task Force to Improve Hydroelectric 
Licensing Processes (ITF). This committee was established to coordinate 
federal and state mandates. In July of 1999, the ITF established a 
Federal Advisory Committee to provide a forum for non-federal entities 
consisting of industry, states, tribes and environmental groups, to 
review and provide feedback on the activities of the ITF.
    This forum concluded its work at the end of 2000 with the 
publication of six guidance documents covering a broad range of issues 
that confront hydropower regulation. It also resulted in one rulemaking 
on the part of FERC and two formal guidance documents on the part of 
Interior and Commerce. We believe that these reforms represent 
significant steps forward in improving the relicensing process, but 
they have not been given much time to work. Additional reforms, 
particularly by FERC, are still desirable. American Rivers supports a 
process that is structured around NEPA with draft and final decisional 
documents, complete information for all participants, flexible but 
reliable timeframes, and transparency of analysis. Unfortunately, as an 
independent agency, FERC cannot be compelled by the administration to 
make administrative or regulatory changes.
    This fact was recently confirmed by the President's energy plan. 
``The NEPD Group recommends that the President encourage the Federal 
Energy Regulatory Commission (FERC) and direct federal resource 
agencies to make the licensing process more clear and efficient, while 
preserving environmental goals.'' (President's Plan emphasis added, 5-
18 and 5-22)
    While the President can ``direct'' federal resource agencies to 
act, just as his predecessor did through the efforts of the ITF, he can 
only ``encourage'' FERC. To date, FERC has been unwilling to undertake 
major changes to its licensing process other than those that reduce its 
own costs and time such as the ALP. If the President and Congress make 
changes to the relicensing process for federal resource agencies 
without requiring FERC to make changes as well, we will diminish the 
few basic environmental protections afforded in this process.
                    legislative changes to consider
    American Rivers continues to believe that legislation is 
unnecessary to improve the licensing process for hydropower dams; 
however, if Congress insists on moving forward with a legislative 
package, we offer the following elements that we believe should be 
included:

 Require FERC to establish a process that begins at the 
        beginning, revolves around NEPA, and provides all information 
        deemed necessary by all decision-makers.
 Implement direct cost recovery for federal and state agency 
        participation
 Reauthorize the Office of Public Participation
 Require timely and complete development of studies on the part 
        of applicants
 Insist on a relicensing schedule from FERC
 Institute a royalty fee for the private use of public rivers
 Limit and condition the issuance of annual licenses
 Grant shorter license terms with more flexible conditions
                               conclusion
    Our nation's rivers and fisheries are facing a crisis of slow but 
steady extinction. Resource agencies with expertise in these areas and 
mandates that minimize environmental harm are in the best position to 
address this threat. We can endeavor to find better ways to generate 
hydropower and new sources of energy but we cannot bring back species 
once they have gone extinct. Reforms of the hydropower licensing 
process must focus on improved relations among the agencies rather than 
reduced protections for our river resources.
               Members of the Hydropower Reform Coalition
Alabama Rivers Alliance (AL)*; American Canoe Association; American 
Rivers*; American Whitewater*; Anglers of the Au Sable (MI); 
Appalachian Mountain Club*; Atlantic Salmon Federation--Maine (ME); 
California Hydropower Reform Coalition (CA)*; California Outdoors (CA); 
California Save Our Streams (CA); California Sportfishing Protection 
Alliance (CA); California Trout (CA); Catawba Riverkeeper (SC); Center 
For Sierra Nevada Conservation (CA); Chattahoochee Riverkeeper (GA); 
Chattooga River Watershed Coalition (GA); Chota Canoe Club (TN); 
Coldwater Fisheries Coalition; Colorado Rivers Alliance (CO); Committee 
to Save the Kings River (CA); Conservation Law Foundation*; Coosa River 
Paddling Club (AL); Earthjustice Legal Defense Fund*; Environmental 
Action! (GA); Federation of Fly Fishers; Foothill Conservancy (CA); 
Friends of the Eel River (CA); Friends of the Kennebec Salmon (ME); 
Friends of the River* (CA); Friends of Sebago Lake (ME); Georgia River 
Network (GA); Housatonic Coalition (CT); Idaho Rivers United (ID)*; 
lzaak Walton League of America; The Institute for Fisheries Resources 
(OR); Kern River Alliance (CA); Kern Valley Community Consensus Council 
(CA); Kernville Chamber of Commerce (CA); Michigan Hydro Relicensing 
Coalition (Ml)*; Michigan United Conservation Clubs (MI); Mono Lake 
Committee (CA); Montana River Action Network (MT); The Mountaineers 
(WA); Natural Heritage Institute*; Natural Resources Council of Maine 
(ME); New England FLOW*; New Hampshire Coldwater Fisheries Coalition 
(NH); New Hampshire Rivers Council (NH); New York Rivers United (NY)*; 
North Carolina Watershed Coalition (NC); Northwest Resources 
Information Center (ID); Oregon Natural Resources Council (OR); Oregon 
Trout (OR); Pacific Coast Federation of Fishermen's; Associations (OR); 
Planning and Conservation League (CA); River Alliance of Wisconsin 
(WI)*; Rivers Alliance of Connecticut (CT); Rivers Council of 
Washington (WA); Rivers Unlimited of Ohio (OH); San Joaquin Paddlers 
(CA); Save our Streams; Sawmill River Watershed Alliance (MA); Sequoia 
Paddlers (CA); Shasta Paddlers (CA); Sierra Nevada Alliance (CA); South 
Carolina Coastal Conservation League (SC); The Steamboaters (OR); 
Tennessee Valley Canoe Club (TN); Trout Unlimited*; Tuolumne River 
Preservation Trust (CA); Upper Chattahoochee River Keeper (GA); Utah 
Rivers Council (UT); Vermont Natural Resources Council (VT); and West 
Virginia Rivers Coalition (WV).

    * Denotes Steering Committee member

    Mr. Walden. Thank you. We appreciate your testimony.
    Let us go now to Mr. Ronald Shems. Welcome. We look forward 
to your testimony, sir.

                    STATEMENT OF RONALD SHEMS

    Mr. Shems. Thank you, and I thank the committee----
    Mr. Walden. You need to turn on--yes, pull that close to 
you.
    Mr. Shems. Thank you, and I thank the committee for having 
invited me to testify today on behalf of the State of Vermont. 
Vermont values and relies upon renewable energy sources, such 
as hydroelectricity, and we share your desire to make the 
process more efficient and offer the following thoughts to 
assist the committee in that endeavor.
    Vermont issues Clean Water Act section 401 certifications 
for a variety of programs, the most common of which are Army 
Corps of Engineers, 404 dredge and fill permits, and also FERC 
licenses. FERC, in its May 2001 report on the relicensing 
process, seems to blame delays on the licensing process on the 
State 401 certification process. In addition, FERC asserts that 
the Federal Power Act and Clean Water Act should be changed to 
give FERC significant authority over State water quality 
decisionmaking. However, Vermont believes that the FERC 
process, which is currently unresponsive to State and local 
concerns, is the root cause of any 401 process delay.
    To truly streamline the water quality certification 
process, I am here to point out that the FERC itself needs to 
work closely with the States on Clean Water Act compliance, 
given that the States, not FERC, are vested with authority over 
the Clean Water Act. FERC also needs to recognize that 
licensing terms, currently 30 to 50 years, should be 
dramatically shortened or periodically reviewed. FERC should 
also require immediate compliance with the Clean Water Act at 
the end of a licensing term.
    FERC has not taken a comprehensive look at the 401 process 
and the benefits of State expertise. For example, the vast 
majority of certifications issued by the State of Vermont are 
instantaneous, issued in conjunction with nationwide dredge and 
fill permits issued by the Army Corps of Engineers. This was 
achieved through the Corps working closely with the State of 
Vermont and reaching an agreement that covers Corps projects 
falling under the nationwide permits.
    Over the last year, Vermont has issued a number of 401 
certifications, and the usual turnaround time for these 401 
certifications has been approximately 3 to 9 months for several 
major projects, including major highway and water withdrawal 
projects for ski areas and snowmaking. Comprising almost two-
thirds of our major projects requiring 401 certifications, 
highway and water withdrawal projects are expensive, long-term 
projects, much like hydroelectric dams.
    In Vermont, the 3 to 9-month turnaround is typical for our 
401 certification program. Yet, the certification process in 
regards to the hydroelectric facilities involving FERC can be 
very lengthy. As I mentioned before, Vermont attributes these 
delays not to section 401 or the certification process but to 
the characteristics of the FERC licensing process. I will take 
the next few minutes to outline these in more detail for the 
committee.
    First, FERC is refusing to fully recognize the State's need 
to assure ongoing compliance of the Clean Water Act over the 
full-term of a hydroelectric license. The Federal Power Act, 
when enacted in 1920, encouraged dam construction by providing 
for a 50-year license. The era of dam construction is, as we 
have heard today, for all practical purposes, over. Yet, unlike 
licenses issued for sewer treatment facilities, coal- or gas-
fired power plants or hazardous waste facilities that are on a 
5-year licensing cycle, hydroelectric facilities are still on a 
30 to 50-year licensing cycle. This means that many 
hydroelectric facilities licensed in the 1940's and 1950's are, 
for the first time, being brought into compliance with the 
Clean Water Act.
    More significantly, it means that States, through the 
single 401 certification that we have to issue now, has to 
assure compliance with the Clean Water Act for the next 30 to 
50 years. That is an enormously difficult task that offers very 
little flexibility to the States. Because certification sets 
the stage for compliance for up to 50 years, negotiations with 
utilities are extensive and the pressures are very great on all 
sides.
    In short, the length of the licensing term reduces the 
flexibility and raises the stakes. Shortening the licensing 
term or alternatively creating a periodic review mechanism that 
provides flexibility and allows the States to review Clean 
Water Act compliance throughout the full term of the license 
would make the process a lot more efficient. For Vermont, we 
believe that this could cut the 401 process turnaround time for 
a hydroelectric facility 2 to 3 to 9 months that we see with 
other projects.
    Second, utilities are not providing timely and complete 
information, directly causing delay. Delay results in FERC's 
issuance of a year-to-year license. In the case of Vermont's 
largest hydroelectric project, a four-dam project in the Lemoil 
River, FERC has issued year-to-year licenses for 15 years, 
allowing the project to continue operating today under a 
licensed issued in the 1940's.
    The utilities' lawyers are fond of reminding us that time 
is on their side. Delay puts off compliance with the Clean 
Water Act. We believe that in the interim, the interim being 
between the license expiration and the issuance of a new 
license, FERC should require at least minimum Clean Water Act 
compliance, thus easing the utilities' ability to comply in the 
long-term. This would dramatically speed up the 401 process. 
FERC could take the leadership role on this issue but has 
chosen to reject this management option.
    Third, FERC has not established a working rapport with the 
States that other Federal agencies, including the Army Corps of 
Engineers, the Fish and Wildlife Service and EPA, have 
recognized as crucial to timely permitting and compliance. 
Instead it avoids State expertise and complains that its 
authority is being dissipated. However, as decided by the U.S. 
Supreme Court in the case of PUD Number 1 of Jefferson County 
v. Washington Department of Ecology, and as decided by the 
Second Circuit Court of Appeals in American Rivers and State of 
Vermont v. FERC, the authority lies with the States, not with 
FERC. There is no authority that is being dissipated here. 
Instead, the States and EPA are those with congressionally 
authorized power to oversee water quality. FERC's 
characterization of dissipated authority seems, in fact, an 
attempt to override local control and State expertise on water 
quality standards.
    Vermont is under the impression that FERC is more concerned 
with consolidating its authority than with achieving a real 
partnership with the States. A true cooperative relationship 
between FERC and the States would allow the coordination and 
communication that would make the 401 process a lot more 
efficient.
    Finally, I ask this committee to recognize that the 
authority and expertise of States. States are not delaying the 
401 process. Antiquated FERC practices are the main cause of 
the delay. FERC clearly takes issue with the 401 process, but 
it must recognize the States' leadership on this issue and not 
try to override local concerns if it truly wants to achieve 
reform.
    Despite this basic fact, I note that there were no State 
representatives on the Interagency Task Force, nor are there 
any State representatives on the successor to the Interagency 
Task Force. In addition, the Federal Advisory Committee that 
was advising the ITF had several county, industry, tribal 
representatives on that committee. There was only one State 
representative and only one representative dealing with the 
Clean Water Act--this State. The Electric Power Research 
Institute, an industry research group, also advised FERC on 
revamping this process. There was no meaningful State 
participation in the EPRI process.
    Mr. Walden. Can you sum up your remarks. We are about 2 
minutes over here, 2\1/2\.
    Mr. Shems. We would just ask that the State be involved in 
the ongoing process of trying to revamp the hydroelectric 
licensing process. Thank you.
    [The prepared statement of Ronald Shems follows:]
  Prepared Statement of Ron Shems on Behalf of the Vermont Agency of 
                           Natural Resources
    My name is Ron Shems and I am appearing on behalf of the State of 
Vermont Agency of Natural Resources. I thank the Chair and the 
Committee for inviting me today.
    Vermont values and relies upon renewable energy sources such as 
hydroelectricity. We share your desire to make the process more 
efficient and offer the following thoughts.
    Vermont issues Clean Water Act 401 certifications for a variety of 
programs, the most common of which are Army Corps of Engineers Sec. 404 
dredge and fill permits and FERC licenses. FERC, in its May 2001 report 
on relicensing issues, seems to blame delays in its licensing process 
on the State 401 certification process. In addition, FERC argues that 
the Federal Power Act and Clean Water Act should be changed to give 
FERC significant authority over State water quality decision-making.
    However, Vermont believes that the FERC process--which is currently 
unresponsive to State and local concerns--is the root cause of any 401 
certification delay. To truly streamline the 401 process, I am here to 
point out that FERC itself needs to work closely with States on Clean 
Water Act compliance, given that States--not FERC--were vested with 
authority over Clean Water Act issues.
    FERC also needs to recognize that licensing terms--currently 30 to 
50 years--should be dramatically shortened or periodically reviewed. 
FERC should also require immediate compliance with the Clean Water Act 
at the end of a licensing term.
    FERC has not taken a comprehensive look at the 401 process and the 
benefits of State expertise. For example, the vast majority of 
certifications issued by the State of Vermont are instantaneous, issued 
in conjunction with nation-wide dredge and fill permits issued by the 
Army Corps of Engineers. This was achieved through the Corps working 
closely with the State of Vermont and reaching an agreement that covers 
Corps projects falling under nationwide permits.
    Vermont is able to have a 401 certification turnaround time of 
approximately 2-9 months (with an average of five months) for major 
projects such as major highway and water withdrawal projects for ski 
area snowmaking. Comprising almost \2/3\ of our major projects 
requiring 401 certifications, highway and water withdrawal projects are 
expensive, long-term projects--much like hydroelectric dams. In 
Vermont, this kind of turnaround is typical of our CWA 401 
certification program.
    Yet the certification process in regards to hydroelectric 
facilities, involving FERC, can be very lengthy.
    Vermont attributes these delays, not to the 401 certification 
process, but to the characteristics of the FERC licensing process, and 
three reasons in particular:
    First, FERC is refusing to fully recognize the States' need to 
assure ongoing compliance with the Clean Water Act over the full term 
of a hydroelectric license. The FPA, when enacted in 1920, encouraged 
dam construction by providing for a 50-year license. The era of dam 
construction is, for all practical purposes, over. Yet, unlike licenses 
issued for sewage treatment facilities, coal or gas-fired power plants, 
or hazardous waste facilities that are on a five-year relicensing 
cycle, hydroelectric facilities are still on a 30 to 50 year 
relicensing cycle.
    This means that many hydroelectric facilities licensed in the 1940 
and 1950s are, for the first time, being brought into compliance with 
the Clean Water Act. More significantly, it means that States, through 
the single 401 certification issued now, have to assure compliance with 
the CWA over the next 30 to 50 years.
    This is an enormously difficult task that offers very little 
flexibility. Because the 401 certification sets the stage for 
compliance for up to 50 years, negotiations with utilities are 
extensive and the pressures are great on all sides. In short, the 
length of the licensing term reduces flexibility and raises the stakes. 
Shortening the licensing term, or alternatively, creating a mechanism 
for periodic review during the licensing term, would provide 
flexibility and allow States to assure CWA compliance throughout the 
full licensing term. Shortening the licensing term would also lower the 
stakes. For Vermont, we believe this could cut 401 process turnaround 
time for hydroelectric facilities to 2-9 months, similar to the timing 
of certification of other major projects.
    Second, utilities are not providing timely and complete 
information, directly causing delay. Delay results in FERC's issuance 
of a year-to-year license. In the case of Vermont's largest 
hydroelectric project, a four-dam project on the Lamoille River, FERC 
has issued a year-to-year license for fifteen years allowing the 
project to continue operating under a license issued in the 1940s. The 
utility's lawyers are fond of reminding us that time is on their side. 
Delay puts off compliance with the Clean Water Act. We believe that in 
the interim, between license expiration and the issuance of a new 
license, FERC should require interim Clean Water Act compliance 
measures. This would remove a utility's incentive to delay, and 
dramatically speed up 401 certification of hydroelectric facilities. 
FERC could take a leadership role on this issue, but has chosen to 
reject this management option.
    Third, FERC has not established a working rapport with States that 
other federal agencies, including the Army Corps of Engineers, the Fish 
and Wildlife Service, and EPA, have recognized as crucial to timely 
permitting and compliance. Instead, it avoids State expertise and 
complains that its authority is being dissipated. However, as decided 
by the Supreme Court in PUD of Jefferson County v. Washington Dept. of 
Ecology (1994), and the Court of Appeals in American Rivers and State 
of Vermont v. FERC (2d Cir. 1997), FERC has no authority over Clean 
Water Act issues. Instead, the States and EPA are those with the 
congressionally-authorized power to oversee water quality. FERC's 
characterization of ``dissipated'' authority seems, in fact, an attempt 
to override local control and state expertise on Water Quality 
Standards. Vermont is under the impression that FERC is more concerned 
with gathering authority than with achieving a real partnership with 
the States. A true, cooperative relationship between FERC and the 
States would allow the coordination and communication that would hasten 
401 certification of hydroelectric facilities.
    Finally, I ask this committee to recognize the authority and 
expertise of States involved in this process. States are not delaying 
the 401 process. Antiquated FERC practices are the main cause of the 
delay. FERC clearly takes issue with the 401 process, but it must 
recognize States' leadership on this issue--not override Water Quality 
Standards--if it truly wants to achieve efficient hydroelectric 
licensing reform.
    FERC should not blame the States without first having given the 
States the opportunity to provide meaningful input. There were no state 
representatives on the Interagency Task Force (ITF) to review 
hydroelectric project relicensing issues, nor are there any State 
representatives on the ITF's successor, the Interagency Hydro 
Committee. In addition, the Federal Advisory Committee (FACA) committee 
advising the ITF consisted of several counties, tribes, and industry, 
but only one State representative. Only the State member represented an 
interest with authority over Clean Water Act issues. The Electric Power 
Research Institute (EPRI)--an industry research group--also advised 
FERC without any State input.
    FERC has no authority in Clean Water Act issues and cannot, and 
should not, be dictating compliance with State Water Quality Standards. 
FERC should work with the States if it wants to truly streamline the 
401 certification process.

    Mr. Walden. Thank you very much. The Chair would yield 
himself 5 minutes for the round of questioning.
    Mr. Prescott, let us go to you as an applicant on the 
panel. We have heard a lot today about the process that is 
involved--good, bad, indifferent. Can you speak to this issue 
of these automatic license renewals? Is it as simple as you 
walk in and say, ``I want to renew for another year,'' or do 
you have to--what kind of information do you have present FERC 
when you go through that process?
    Mr. Prescott. Well, Mr. Walden, before we get to the point 
of annual licenses, we have to submit a full and complete final 
application. And that was referred to earlier by Mr. Robinson 
from FERC. It is so voluminous and so intense, right now we are 
$30 million into studies to get to that point.
    Mr. Walden. Thirty million?
    Mr. Prescott. Thirty million dollars in studies we have 
worked on so far at Hell's Canyon. That application is due July 
2003. So there is a tremendous amount of work that goes into 
the point that gets you to annual licenses.
    I would also like to say that in annual licenses it creates 
a vast amount of uncertainty for Idaho Power and its customers.
    Mr. Walden. How so?
    Mr. Prescott. I have the responsibility to make sure that 
there are resources available for the customers of Idaho Power 
Company in both Idaho and Oregon. And I have to be certain that 
if the hydro system isn't going to be there, I have to provide 
other resources. It most likely would be some sort of 
combustion gas-fired turbine. So, again, in the annual 
licenses, it is total uncertainty for me. I don't know how to 
plan----
    Mr. Walden. It sounded like today that those annual 
licenses were automatic. You can just go year after year after 
year. So can you explain the uncertain element?
    Mr. Prescott. They are annual licenses and they renew year 
by year, but at what point does the new license come out, what 
does it look like? That is the uncertainty.
    Mr. Walden. Okay.
    Mr. Prescott. I can't put the value on the resource till I 
get that certain.
    Mr. Walden. So reliability in getting--surety is the big 
issue for you?
    Mr. Prescott. Yes, in annual licenses.
    Mr. Walden. And we heard testimony from Ms. Birnbaum that 
we are only talking about .4 of 1 percent of the Nation's power 
might be reduced, I think is----
    Ms. Birnbaum. That is .04, actually.
    Mr. Walden. I am sorry, .04 of 1 percent. What does that 
mean in terms of a region, because not every region in the 
country has hydro to the extent we do in the Northwest? What is 
the reduction of, let us say, just 1 percent mean to Idaho 
Power if you lose 1 percent of your power, hydro?
    Mr. Prescott. Well, 1 percent, I don't have the exact 
number here, is going to be on the order of like probably 100 
megawatts. It is significant in that that has to be replaced 
with something, and, again, the only thing I can do is go out 
and construct a gas-fired combustion turbine to replace that 
capacity. Again, in my testimony, I point out that without 
quibbling over percentages, any loss of a clean, renewable 
energy source, I think is a disgrace.
    Mr. Walden. One percent for Idaho Power would be 100 
megawatts.
    Mr. Prescott. I think so; I will have to check.
    Mr. Walden. Roughly, though; is that what you are saying? 
Okay.
    Ms. Birnbaum, I was interested in your testimony which I 
read this morning. On page 14, I noticed you cite a 1997 
University of Michigan study that showed FERC rejected or 
modified 35 percent of agency Fish and Wildlife 
recommendations. Those weren't the mandatory recommendations, 
were they?
    Ms. Birnbaum. Right. They can't reject those.
    Mr. Walden. I am sorry, cannot?
    Ms. Birnbaum. They cannot reject the mandatory 
recommendations, although they have tried to argue that some of 
them are outside the jurisdiction of the agencies or that if 
they are submitted too late, that they cease to be mandatory. 
So far----
    Mr. Walden. So the ones mentioned here, then, are the--are 
those the 10J? I am trying to learn this as I go. And those 
would be the non-mandatory?
    Ms. Birnbaum. I am not sure whether the study looked only 
at 10J; I believe they also looked at 10A recommendations.
    Mr. Walden. Okay. But these would be the non-mandatory.
    Ms. Birnbaum. Right.
    Mr. Walden. So these are added on top of whatever the 
agencies came up with with the mandatory recommendations?
    Ms. Birnbaum. Right. Now FERC has asserted that it accepts 
95 percent of them. This study found they rejected actually 35 
percent.
    Mr. Walden. Well, 95 percent of the non-mandatory?
    Ms. Birnbaum. Right.
    Mr. Walden. Or 95 percent of all?
    Ms. Birnbaum. Of the recommendations as opposed to the 
mandatory conditions. The terminology is different. Of the 
recommendations, they maintained that they accepted 95 percent. 
The study finds a different figure.
    Mr. Walden. And of those that use the terms ``rejected'' or 
``modified,'' 35 percent of the agency Fish and Wildlife 
recommendations, how much was rejected, how much was modified 
and----
    Ms. Birnbaum. I am not certain. I would have to look at the 
study to get you that.
    Mr. Walden. Okay, okay. I was just curious, because I was 
trying to figure out. It looks like if Fish and Wildlife and 
NMFS and you have got the State through the 401 process have 
the mandatory recommendations. And then you have these non-
mandatory on top of that. And then a certain percent are either 
rejected or modified. Modified could mean a whole host of 
things.
    Ms. Birnbaum. That is correct.
    Mr. Walden. And 65 percent of them then are accepted. I 
realize where you are coming from, the 95 versus 65, but----
    Ms. Birnbaum. Right. That recommendation non-mandatory 
materials are the only routes where other State agencies have 
any input into the process. The State fish and game agencies 
only can make recommendations, can't supply mandatory 
conditions, other agencies who are interested. So those are 
significant to those agencies.
    Mr. Walden. Let me ask one final question, as my time is 
out. But, Mr. Prescott, we heard earlier, too, that really on 
the Clean Water Act issues, the 401, that you are just talking 
basically water temperature is what a colleague said, turbidity 
issues maybe. But are there other issues that come up from the 
States unrelated? What sorts of things have you run into that 
other entities are trying to work into the application process?
    Mr. Prescott. Well, what we are seeing is things that go 
well outside the Clean Water Act. It could be such things as 
boat docks, recreational facilities, you name it. We refer to 
it as the Christmas tree approach.
    Mr. Walden. Okay. Thank you, Mr. Prescott. My time has 
expired. I now turn to my colleague from Virginia for 5 
minutes.
    Mr. Boucher. Thank you very much, Mr. Chairman. Mr. Shems, 
I particularly want to thank you this afternoon for your 
willingness to appear here on what I know was very short 
notice.
    Mr. Shems. Thank you.
    Mr. Boucher. And we are grateful for your testimony, and I 
thank you very much for preparing it just over less than a 24-
hour period.
    Let me get your response to one of the recommendations that 
is in the FERC 603 Report. It recommends that State Clean Water 
Act authority and the relicensing procedures be limited to 
physical and chemical water quality parameters related to the 
hydropower facility. That particular recommendation has raised 
concern from a number of quarters, not the least of which is 
Commissioner Breathitt. In her comments concerning this set of 
recommendations, she has objected to that. I would like to get 
your view on what you think that recommendation, if 
implemented, would do to the States' authority to continue to 
protect water quality. And if you could comment on that, I 
would appreciate it.
    Mr. Shems. I believe that----
    Mr. Boucher. And could you pull that microphone a bit 
closer. We are having a little trouble. Thank you.
    Mr. Shems. If that recommendation were adopted, it would 
have a devastating impact on a state's ability to assure 
compliance with the Clean Water Act.
    Mr. Boucher. Could you explain that and tell us why that 
would be true?
    Mr. Shems. The Clean Water Act requires States and/or EPA 
to protect the biological, chemical and physical integrity of 
water. And, essentially, FERC is cutting out the biological 
aspect of things. The Clean Water Act also requires us to 
manage waters in order to achieve designated uses, such as 
habitat. And if we don't have sufficient flow or if we don't 
have sufficient temperature or if the quality of the water body 
is insufficient or not good enough to maintain habitat, we 
cannot meet the designated use and cannot meet the requirements 
of the Clean Water Act.
    Mr. Boucher. So there are essential factors that would have 
to be considered in addition to merely the physical and 
chemical characteristics for a complete evaluation to occur.
    Mr. Shems. Absolutely. And the courts--the U.S. Supreme 
Court and also the Second Circuit Court of Appeals, in 
litigating these issues, have said that the States have been 
absolutely correct to consider the biological, chemical and 
physical integrity of water, sir, in doing so.
    Mr. Boucher. Thank you very much, Mr. Shems.
    Mr. Shems. Thank you.
    Mr. Boucher. Mr. Hill, in your testimony, you state that 
Congress needs to consider carefully the recommendations that 
are made by the FERC staff--and you are referring to the 603 
report--because, and I will quote from your testimony, ``Some 
of the recommendations appear to be based on inadequate or 
inappropriate data, and some may change the outcomes of the 
process.'' That is a pretty strong criticism of the report, and 
it seems to undermine a lot of the basis on which we might be 
proceeding as a committee. And I would like to ask for you to 
elaborate, if you would, please, on the testimony that you have 
given in this particular, and cite specific examples, if you 
can.
    Mr. Hill. Yes, sir. And if I may, I would like to have Ms. 
Barlow and Mr. Cotton respond to this. They have done the bulk 
of the work here. They have seen the specific examples. We cite 
a couple of them in the report.
    Mr. Boucher. We would be happy to hear from them.
    Mr. Hill. But I am going to refer to Ms. Barlow and Mr. 
Cotton.
    Mr. Boucher. All right. Ms. Barlow?
    Mr. Barlow. A couple of the specific examples----
    Mr. Boucher. And if you could pull the microphone just a 
bit closer, please. Thank you.
    Mr. Barlow. A couple of the specific examples that we found 
specifically regarding cost was that FERC obtained licensing 
costs from the applicants. These were voluntarily provided. And 
these costs were--FERC gave no guidelines for administering 
these costs, so it is sort of hard to tell what the results of 
those would be, as far as who decided to give these costs.
    In addition, we also found that FERC was unable to separate 
the amount of costs that they provided for themselves from the 
relicensing--from the costs that they also do to do other 
relicensing studies and things.
    Mr. Boucher. Okay. Do you have some further examples? Mr. 
Cotton?
    Mr. Cotton. Yes. She touched on the inadequate data that 
FERC was using. We also touched on the inappropriate data. For 
example, the data that they used to justify their need to be 
the sole source, one-stop shopping, identified 16 projects that 
took a longer period of time than would be normally expected 
under the process and couldn't be tied to any particular 
reason, such as water certification. That they used to argue 
needed to change the process before all these projects are 
relicensed. Only problem is 14 of the 16 projects that they 
referred to were for original licenses, not projects that were 
coming in to be relicensed.
    Now it is true that they all go through the same steps in 
the process, but you address different issues for a project 
that hasn't been built yet versus one that has been out there 
for 50 years and may have to put in fish ladders to continue 
operating. So that is where we raised the concern, when we 
looked at FERC's report, that not only did they not have what 
we felt was adequate data to make decisions, but we thought the 
data that they used sometimes they didn't use appropriately.
    Mr. Boucher. Okay. You are very credible agency, and 
absolutely neutral, and your construction of recommendations--
you don't have an axe to grind. And your recommendations come 
with great weight and authority in the minds of this Member of 
Congress. And so I want to thank you very much for those 
comments, and we will certainly consider very seriously what 
you have had to say about this report. Thank you very much, Mr. 
Chairman.
    Mr. Walden. Now the Chair yield 5 minutes to the gentleman 
from Arizona, Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. Let me begin, Mr. 
Hill, with you and with your assistants. I guess there is a 
question about the reliability of the FERC data. I want to go 
to some of that data. In the FERC report, they contend that the 
licensing time period required for relicense applications 
between January 1982 and May 1992, that 10 or 11-year span, was 
30 months. And then they content that they looked a second 
block of 93 cases for relicensing between January 1, 1993 and 
December 31, 2000. And they say that of the 93 cases they 
looked in that class, I believe the time was 42 months. Do you 
challenge those findings on just objectively how much time it 
took to relicense?
    Mr. Hill. I am not in a position to challenge them, because 
we have not really looked behind that source data. But I will 
raise the following questions. They are basically running--
whatever numbers they can scrape together, there is incomplete 
data sets. There is a question as to the sample that they are 
taking. In other words, is that earlier sample--what types of 
projects are we talking about, big hydropower projects or small 
hydropower projects? Our understanding is that the relicensing 
that has been done up to this point has been primarily on 
smaller projects, and the ones that are coming into the 
pipeline now are bigger projects.
    Could that account for the difference in the delays, or the 
additional time it is taking? It is hard to say. There are a 
lot of factors that could go into why it would be longer versus 
shorter, and that is exactly why the point we are making is you 
need to kind of get the data together, and you need to get the 
data by participant, by project, by parts of the process. And 
then you need to analyze that data to see where the snags are 
occurring, and that is where you can focus your reforms.
    Mr. Shadegg. I guess one of my concerns about that answer 
is that you say it is your understanding that they were looking 
at smaller projects versus larger projects. Your report would 
be more useful to me at least if you could answer the question 
I just put and we could get some data to rely upon.
    One of the concerns I have----
    Mr. Cotton. Could I add to that?
    Mr. Shadegg. Well, my time is pretty limited, but----
    Mr. Cotton. Okay. We couldn't find anybody that disagreed 
with what you just said. They may disagree over the exact 
numbers, but we couldn't find anybody, not in the environmental 
community, not in the States, not in the Federal regulatory 
agencies that would not agree that it takes longer, costs more, 
and is far more controversial today than it was when that first 
set of projects went through. The problem you have right now is 
you don't know why.
    Mr. Shadegg. That is a great segue. And in your report, you 
make an effort to identify some causes. You point out at page 9 
of your report that public values have changed over the past 30 
to 50 years and now reflect a growing concern about the 
environment. And I would agree with that. I am concerned about 
the environment; I am concerned about the impacts of dams and 
hydro projects on our rivers. I care deeply about them. We 
don't have enough in Arizona, and the ones we have I care a lot 
about. But that covers a span of 30 to 50 years. Their data 
talks about just the last 20 years, roughly. And it is tough to 
know the answer.
    You do go a little more specifically, at page 8 of your 
report, and talk about the Electric Consumers Protection Act in 
1986, which as I understand it, gave the States a great deal of 
additional role, including Mr. Shems, in the process, which I 
personally think is an appropriate role. But I guess that is 
where I wanted to kind of get to the nub of my question, which 
was, okay, that act passed in 1986. Their data looked at 1982 
to 1992. It seems to me that there was a period of time when 
that act was in place that we were still processing, according 
to their report, applications at a more rapid pace, medium 
time, than the time span from 1993 to 2000.
    And I guess my question is it seems to me that it can't 
be--it could well be that over time environmental concern has 
caused the delay. And it could be that following 1986, the 
Electric Consumers Protection Act caused some additional 
environmental study, perhaps appropriately, and caused some 
delay following 1986. But that doesn't explain between 1986 and 
1992 why we were processing, at least according to that data, 
those applications more quickly than we are now. And I would be 
happy to have you comment, and then I have got some questions 
for others.
    Mr. Cotton. Could I respond to that very quickly? You 
passed a law in 1986. FERC did not enact the implementing 
regulations or complete anyway that implementing regulations 
till 1992.
    Mr. Shadegg. Okay.
    Mr. Cotton. So that could and probably does explain why you 
are going to see that difference between 1992 and now and 
looking back. There is a lag time between you pass a law and 
when an agency publishes or promulgates the implementing 
regulations. In this case, it was 1992.
    Mr. Shadegg. Do you want comment? Sure.
    Ms. Birnbaum. Yes. Might I suggest another reason? I think 
that the most significant factor in why there is a longer 
licensing period starting in 1993 was the class of 1993 
relicensing class overwhelmed everybody. Since then, FERC has 
formalized its regulations for relicensing. There has been the 
interagency work and so on to try to keep that from happening 
again, as this new glut of applications comes in. But simply, 
at that point, nobody had the capacity to handle the number of 
applications that came in, and it delayed everything.
    Mr. Shadegg. I appreciate that information. Ms. Birnbaum, 
since you are at the microphone, let me ask you a question. Mr. 
Prescott expressed a concern that I think reflects that of many 
people, which is with a growing population in the country and 
therefore a growing demand for energy, no matter how much more 
efficient we make it, which we need to be working very 
aggressively on, loss of power generating capacity at 
hydroelectric plants, even if it is in the small numbers you 
talked about, for many of us is going in the wrong direction, 
particularly given the ability of hydro to do, at least in some 
circumstances, peaking power, to provide peaking power.
    My question of you is the same question I asked of 
Commissioner Hebert before, which was assuming a turbine, a 
more efficient turbine, is made more efficient by the way its 
windings go, not by its blades that the fish have to swim 
through, and assuming that the new, more efficient turbine is 
neutral in its damage to fish and/or assuming other mitigating 
things are done to let fish bypass that, fish ladders, other 
things you have talked about, would your organization agree or 
would you not agree that replacing inefficient turbines with 
more efficient turbines ought to be a part of the mix and that 
there is nothing negative about doing so?
    Ms. Birnbaum. We strongly favor improved technologies that 
increase the amount of power generated by each drop of water. 
That is different, however, from saying that we would support 
turbine changes that might increase capacity, increase the 
peakings of power plants, which often, although I recognize it 
may meet the peak power demand in Phoenix, has a significant 
impact on river environments.
    Mr. Shadegg. One of the things we do in Arizona that is 
very important is we have a pump-back system. We take water out 
of one lake, pump it into the lake above, and release it during 
the peaking areas. I would be interested in if you have 
information on whether that has negative environmental 
consequences.
    Ms. Birnbaum. Frequently, pump-back systems do have 
negative environmental consequences. Those need to be dealt 
with on a case-by-case basis.
    Mr. Shadegg. They have not seemed to be a problem or have 
not gotten publicity in Arizona.
    Mr. Walden. We need to wrap it up.
    Mr. Shadegg. Mr. Prescott, I assume you support more 
efficient turbines?
    Mr. Prescott. Absolutely.
    Mr. Shadegg. And that technology does exist?
    Mr. Prescott. Yes, it does.
    Mr. Shadegg. Thank you, Mr. Chairman.
    Mr. Walden. Thank you. I believe we have a unanimous 
consent request?
    Mr. Boucher. Mr. Chairman, I ask unanimous consent that a 
letter from a variety of environmental organizations relating 
to these hydro licensing renewal processes be included in the 
record.
    Mr. Walden. Without objection.
    [The letter follows:]

Trout Unlimited, Izaak Walton League of America,    
                                                   
                 American Sportfishing Association,        
             Bass Anglers Sportsman Society (B.A.S.S.),    
      Pacific Coast Federation of Fishermen's Associations,
                                                      June 26, 2001
To the Energy and Commerce Committee, Energy and Air Quality 
    Subcommittee:
    In the coming weeks, this Subcommittee will consider changes to the 
hydropower licensing process set out in the Federal Power Act, as 
amended. We urge you to oppose rolling back environmental protections 
in the hydropower licensing process. Hydropower licensing ``process 
reform'' and ``streamlining'' that undermines state and federal 
resource agency protection of valuable fisheries, federal lands used by 
the public for recreation, and water quality will harm recreational 
fishing and the fishing industry.
    President Theodore Roosevelt recognized the importance of fisheries 
when the rules for use of our public waterways by private hydropower 
developers were established in the Federal Power Act. He also 
understood that the management of these rivers would need to change as 
our knowledge of this valuable resource and public priorities changed.
    Today we have overwhelming scientific evidence that hydropower dams 
have caused significant harm to our nation's fisheries. Most notable 
are the declines of Atlantic salmon, now almost extinct in the 
Northeast, and Pacific salmon and steelhead stocks, many of which are 
sliding down that same path. While salmon are the most publicly visible 
of the species affected by hydropower dams, they are by no means the 
only ones.
    We also have a much better understanding of how to avoid these 
fishery declines, and in some instances, how to use technology and 
project operations to enhance fisheries. Striped bass and shad 
fisheries are recovering in many areas of the Northeast due in part to 
better operation and facilities at hydropower dams. Well-operated 
hydropower projects also enhance bass and other freshwater fisheries 
that are vital to local recreation-dependent businesses. When 
hydropower projects are relicensed, we should require the best 
available technology, adopt best management practices, and take full 
advantage of the expertise of state and federal resource agencies in 
setting the terms for hydropower use of public rivers for the next 
generation.
    Resource agencies responsible for the health of fisheries have only 
one chance every 30 to 50 years to affect how private hydropower 
projects are operated. These agencies are charged with protecting 
resources that large numbers of anglers and others enjoy, and upon 
which numerous small and large businesses depend. Resource agencies 
should be allowed to do their job, and not be saddled with excessive 
procedural and substantive requirements that effectively deny them an 
effective role in hydropower relicensing. In particular, the resource 
agencies should not be required to duplicate the role of the Federal 
Energy Regulatory Commission. Nor should they be denied the tools, 
resources and information needed to make good decisions.
    In 1986, Congress passed a package of amendments to the Federal 
Power Act that reaffirmed the need to consider all interests in public 
rivers, not just hydropower. Since then, FERC, the agencies, hydropower 
project owners, fisheries advocates and the public have built a strong 
foundation for increasingly efficient and environmentally satisfactory 
hydropower relicensing proceedings. It's the kind of smart evolution of 
river management that President Roosevelt had in mind.
    Over the next 15 years the licenses for more than 450 dams 
affecting more than 130 of our nation's rivers will come up for 
renewal. We ask you to ensure that we continue to make progress toward 
restoring and enhancing fisheries affected by those projects by 
opposing amendments to the hydropower licensing process.
            Sincerely,
                                                Steve Moyer
          Vice President for Conservation Programs, Trout Unlimited
                                                 Jim Mosher
              Conservation Director, Izaak Walton League of America
                                            Michael Nussman
                  Vice President, American Sportfishing Association
                                                Bruce Shupp
    National Conservation Director, Bass Anglers Sportsman Society 
                                                    (B.A.S.S.) Inc.
                   Glen Spain, Northwest Regional Director,
       Pacific Coast Federation of Fishermen's Associations (PCFFA)

    Mr. Walden. We now ask unanimous consent that we be allowed 
to take testimony for other witnesses who want to provide it to 
the committee and that we have requested. Without objection, so 
ordered.
    Ladies and gentlemen, thank you for being here today. We 
appreciate your testimony as we work on this issue. Thank you. 
The committee is adjourned.
    [Whereupon, at 3:50 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
   Prepared Statement of Hon. Linda Breathitt, Commissioner, Federal 
                      Energy Regulatory Commission
    Mr. Chairman and Members of the Subcommittee: I am pleased to have 
the opportunity to submit my testimony on the role of hydroelectric 
power in helping to meet our Nation's energy demands, the role of 
federal government in licensing the operation of hydroelectric dams, 
and barriers to efficient operation and licensing of hydroelectric 
dams. The Commission regulates hydroelectric facilities that produce 
over five percent of all electric power generated in the United States. 
The Commission's Office of Energy Projects administers programs for (1) 
the licensing and relicensing of jurisdictional projects; (2) the 
continued regulatory oversight of licensed projects during their 
license term; and (3) the oversight of the safety of licensed 
hydropower dams.
    Most recently, the Commission's focus in the hydroelectric arena 
has been to seek ways, within our jurisdiction, to minimize the 
severity of the power crisis faced by citizens in the Western states. 
Hydropower comprises approximately 40 percent of the total Western 
Systems Coordinating Council (WSCC) generation capacity. In the 
testimony I submitted for the March 20, 2001 hearing before this 
Subcommittee, I noted that the Commission has launched an initiative to 
explore the feasibility of increasing energy production, peaking 
capacity, and other power benefits of hydropower projects by easing 
certain operating constraints. I also anticipated the tensions that 
would likely occur, upon review of licensees' applications responding 
to our initiative, in finding a balance between greater operational 
flexibility and the protection of environmental resources.
    The Commission has so far responded to three requests by licensees 
in the West to waive certain license conditions pertaining to minimum 
flow and reservoir level requirements in order to increase generation. 
Indeed, the major issues in those cases have involved competing power 
and non-power interests. To grant even a temporary waiver of license 
conditions entails careful consideration since such operating 
constraints serve to protect many resources, such as resident and 
anadromous fish, water quality, recreation, municipal and industrial 
water supplies, and agricultural resources. In each case, my support 
for waiver of the license conditions at issue was tempered with a 
concern that any action taken should not negatively affect the long-
term health of the environment. I believe that it is important not to 
create additional problems through lack of measured consideration and 
foresight. Rehearing is pending on two of the approved waivers, and the 
Commission is reviewing comments in the third proceeding. The 
Commission also has pending before it six additional applications for 
relief from license conditions to increase generation in the WSCC 
region. I intend to give these pending matters my full attention.
    The Subcommittee asks the Commissioners to comment on procedures 
for licensing projects that are within the Commission's jurisdiction. 
In this regard, I refer the Members of the Subcommittee to the Report 
on Hydroelectric Licensing Policies, Procedures, and Regulations: 
Comprehensive Review and Recommendations Pursuant to Section 603 of the 
Energy Act of 2000 (Staff Report), a document prepared by the 
Commission's staff and submitted to the United States Congress in May 
2001. The Staff Report provides a thorough review of our hydroelectric 
licensing program and presents staff's conclusions and recommendations 
for legislative, procedural, and policy changes to reduce the costs and 
time involved in the licensing process. As the report points out, the 
median time from the filing of a license application to its conclusion 
for recent applications is 43 months, and many proceedings take 
substantially longer. Clearly there remain impediments to the efficient 
administration of the Commission's licensing authority; and to the 
extent I can add my perspective on staff's recommended measures, I will 
do so below.
    More so than in any other program area administered by the 
Commission, the hydroelectric licensing process entails statutory 
requirements that give other agencies a significant and powerful role 
in the licensing process. The Commission has continuously endeavored to 
work with these other agencies to seek faster resolution to licensing 
proceedings; however, I agree with staff's conclusions that additional 
legislation would assist in this regard. Staff's primary recommendation 
is that Congress restore the Commission's position as the sole federal 
decisional authority for licensing conditions and processes. Under this 
approach, those Federal agencies with the authority to impose mandatory 
license conditions would retain that authority, subject to a statutory 
reservation of Commission authority to reject or modify the conditions 
based on inconsistency with the Commission's overall public interest 
determination. This approach could be described as ``one-stop 
shopping'' at the Commission for all federal authorizations.
    While I share staff's views that there remain impediments to 
efficient hydrolicensing that legislation could alleviate, I do not 
join in the recommendation for a ``one-stop shopping'' approach. As 
detailed in the Staff Report, various agencies--the Departments of 
Agriculture, Interior and Commerce, among other federal and state 
entities--are called upon during the licensing process to evaluate many 
competing aspects of license applications, and I believe it is 
appropriate for licenses to reflect the specialized expertise of these 
other agencies. Each brings to the table important responsibilities in 
mitigating the environmental effects of hydropower generation. While I 
firmly believe that the cost and delay of licensing should be minimized 
where possible, this should not come at the expense of legitimate 
environmental mitigation.
    I do, however, agree with some of the alternative legislative 
recommendations presented in the Staff Report. I would support 
legislation that would target legislative solutions to the specific 
impediments the Commission faces in exercising our existing statutory 
authority. First, I would advocate requiring agencies with mandatory 
conditioning authority to better support their conditions with a full 
range of public interest values and to provide a clear administrative 
appeals process. I believe that this could result in licenses that 
reflect a better balance of developmental and environmental values, as 
well as less costly mandatory conditions.
    Second, I believe it would be very helpful if Congress clarified 
the statutory definition of ``fishways'', which Section 18 of the 
Federal Power Act gives the Secretaries of Commerce and Interior the 
authority to prescribe. The authority to mandate fishways has taken on 
great significance in licensing and relicensing proceedings because 
fishways can dramatically affect the capital cost and revenue potential 
of a project. As explained in greater detail in the Staff Report, the 
Commission has little recourse when it concludes that one or more 
mandatory conditions would render a project inconsistent with the 
public interest; and a clear definition would result in fewer such 
conflicts.
    Third, I would support an amendment to the Federal Power Act (FPA) 
to permit the Commission to remit annual charges for other federal 
agency FPA Part I hydropower costs directly to the agencies, specifying 
that they are to be used for implementing Part I. This would better 
allow federal agencies to recover their funds spent for the purpose of 
participating in the licensing process, and it would permit licensees 
to seek administrative appeal of other agency costs from the agencies 
themselves-and, if necessary, seek judicial review of other agencies' 
final determinations. The Commission should not be in a position to 
review the appropriateness of other agencies' expenditures. I believe 
the three legislative measures I have described would provide the 
Commission with the appropriate tools to act more expeditiously on 
license applications, and in some cases, could reduce the costs 
associated with license conditions.
    I would like to comment on one final recommendation that I cannot 
support. The Staff Report recommends that state Clean Water Act (CWA) 
authority should be limited to physical and chemical water quality 
parameters related to the hydropower facility. Currently, a state may 
act under the CWA to regulate not only water quality, but water 
quantity and state-designated uses. I do not disagree with staff's 
premise that reducing the ambit of the certification to water quality 
itself would reduce the need for licensees to conduct studies of other 
matters relating to the use of project waters and thereby serve to 
streamline CWA certification. Nevertheless, I do not concur in staff's 
recommendation to limit the states' CWA authority. I believe that the 
determinations of state water quality agencies concerning the use of 
project waters reflect legitimate local concerns, and I would prefer to 
seek other means of working with states on CWA issues than the 
recommended legislation.
    As a matter over which the Commission already has control, I 
support the continuation of the the Alternative Licensing Process 
(ALP), notwithstanding the fact that it involves lengthy and extensive 
pre-filing consultation and may not significantly reduce the overall 
time for obtaining a license. The most important benefit of the ALP is 
that it encourages parties to communicate earlier, identify issues, and 
discuss resolution. As a general proposition, I favor negotiated 
resolutions over regulatory mandates, and for this reason support the 
ALP. Finally, I will consider the regulatory and policy changes 
delineated in the Staff Report if they come before the Commission for 
decision.
    In closing, I note that, given the events in energy markets this 
year, the hydroelectric program at the Federal Energy Regulatory 
Commission has not received as much public attention as our electric 
and natural gas programs. However, the energy crisis and drought 
conditions affecting the West have served to emphasize the importance 
of hydroelectric generation in the Nation's energy mix. I assure this 
Subcommittee that matters involving the critical issues of 
hydroelectric licensing, regulatory oversight, and safety have received 
the Commission's and staff's full attention and will continue to be a 
high priority for me.
                                 ______
                                 
Prepared Statement of Hon. William Massey, Commissioner, Federal Energy 
                         Regulatory Commission
    Mr. Chairman and Members of the Subcommittee on Energy and Air 
Quality: Thank you for the opportunity to testify on the subject of the 
Commission's role in the licensing of hydroelectric power. As I am sure 
you will agree, recent events in the California and western electricity 
markets have highlighted the critical role of hydropower in meeting our 
nation's energy needs.
    The Northwest Power Planning Council has reviewed the reports that 
snowpack levels are less than 50 percent of average in many areas of 
the Columbia and Snake River basins, and that spring and summer 
streamflows well below average are forecast for most of the west. In 
addition, the Council notes that reports of below average water storage 
in the west have ``serious implications for the reliability of power 
supply'' as well as ``serious implications for power prices through the 
west . . .'' The Council has requested that the Commission give 
expedited consideration to modifications of operations at licensed 
projects in the region in order to alleviate power shortage.
    These events have presented the Commission with some tough 
challenges in carrying out its responsibility to determine the proper 
balance between the development of hydropower as a renewable energy 
source and environmental protection. The Commission has met these 
challenges in a thoughtful and responsible manner. We recently issued 
three orders amending licenses to increase hydropower generation in the 
western United States. In each of these instances, I agreed with the 
Commission's finding that temporary measures required to increase power 
production could be implemented without any long-term environmental 
impact. Let me briefly summarize these cases:
    1. On March 15, 2001, Idaho Power Company filed a request for a 1-
year waiver of article 410 of its Twin Falls Project No. 18 license. 
The project is located on the Snake River in Idaho. Article 410 
requires spills of 300 cubic feet per second (cfs) over Twin Falls 
during certain daylight hours to protect aesthetic resources at the 
falls. On May 8, 2001, the Commission issued an order that allowed the 
aesthetic flows to be temporarily suspended through March 31, 2002 
except on state and federal holidays. The order also required the 
licensee to resume releasing flows over Twin Falls if necessary to 
maintain the state water quality standards for dissolved oxygen. The 
additional power that can be generated by the suspended flows is 
between 6,300 and 9,700 MWh, an increase of 15 to 17 percent.
    2. On March 19, 2001, Idaho Power Company filed a 1-year waiver of 
Article 407 of its Milner Project No. 2899 license. The project is 
located on the Snake River in Idaho. Article 407 requires the release 
of 200 cfs to enhance the fishery resources in the 1.6-mile-long reach. 
The amendment was publicly noticed on March 26, 2001. On May 8, 2001, 
the Commission issued an order approving the request to suspend the 
minimum flow in the bypass reach through March 31, 2002. The additional 
power that would be generated by the suspended flow is between 10,250 
and 14,086 MWh, an increase of from 31 to 50 percent.
    3. On May 9, 2001, Public Utility District No. 2 of Grant County, 
Washington (Grant County), filed an application to suspend its spill 
flow requirements at Priest Rapids Project No. 2114 from May 9, 2001 
through this summer's migration season. The project is located on the 
Columbia River in Washington and is comprised of the Priest Rapids and 
Wanapum developments. The application was noticed for public comment on 
May 10, 2001. On June 1, 2001, the Commission issued an order approving 
a spill flow exchange, an alternative to Grant County's proposal 
offered in comments from the Bonneville Power Administration (BPA). 
Under the spill exchange, BPA will provide spill during the spring of 
2001 at the Bonneville and Dalles dams, foregoing up to 300 MW-months 
of generation, in order to increase the downstream survival of various 
salmon and steelhead species, some of which are listed under the 
Endangered Species Act (ESA). Later, during the summer, if necessary 
for BPA to meet its reliability criteria, Grant County will eliminate 
spill at Priest Rapids and Wanapum dams for up to sixteen hours per day 
(during daylight hours), thereby providing generation to be delivered 
to BPA to offset BPA's generation lost as a result of the spring spill. 
The spill exchange would allow Grant County to produce an additional 
219,600 MWh. Increased generation by Grant County from suspended summer 
spills would be used to offset reduced generation by BPA from increased 
spring spill. The Commission staff's analysis determined that 
suspension of spills by Grant County in accordance with the spill 
exchange would result in a four percent decrease in project passage 
survival for less than half the outmigrating non-listed summer/fall 
chinook salmon, and would have no effects on other salmon and steelhead 
species, including those listed under the ESA.
    When deliberating whether to license, relicense or amend a 
hydropower license, the Commission has the responsibility to consider 
all aspects of the public interest. Amendments to the Federal Power 
Act, enacted as the Electric Consumers Protection Act of 1986, require 
FERC to give equal consideration to environmental resources and energy 
conservation, as well as developmental values such as power production. 
Thus, the ultimate responsibility for determining the proper balance 
between the development of hydropower as a renewable energy source and 
environmental protection rests with FERC.
    On May 8, 2001, the Staff of the Commission, pursuant to Section 
603 of the Energy Act of 2000, submitted to Congress a comprehensive 
review of policies, procedures and regulations for the licensing of 
hydroelectric projects, with the goal of reducing the cost and time for 
obtaining a license. As the Staff report notes, the views of individual 
Commissioners were not incorporated into the document, nor was it 
presented to the Commission for approval or disapproval. However, the 
document does serve as a useful platform for discussion of my role as a 
decision maker on items presented for formal Commission action.
    At the outset, it must be noted that the Chairman of the Commission 
is the administrative officer with responsibility for directing the 
agency's hydropower program (Office of Energy Projects). Internal Staff 
concerns with available resources, relationships with sister agencies, 
non-governmental agencies or state resource agencies, come to the 
attention of individual Commissioners primarily in the context of 
internal debate regarding particular orders.
    The Staff report's primary recommendation is that Congress should 
establish one-stop shopping at the Commission for all federal 
authorizations. This proposal has some immediate appeal. An argument 
can be made that the agency with the authority to determine the 
ultimate outcome of a particular proposal should drive a single 
administrative process in conjunction with a single NEPA document. The 
Staff report recommends that federal agencies with mandatory 
conditioning authority retain that authority, subject to a statutory 
reservation of Commission authority to reject or modify the conditions 
proposed by other agencies if they are found to be inconsistent with 
the Commission's overall public interest determination. Other federal 
agencies bring to the table valuable expertise and historical insight 
that should be given its proper weight, however. The concept that the 
Commission should ultimately be able to reject or modify another 
federal agency's condition should be tempered by a recognition of that 
agency's particular expertise. If the agency's condition is based on 
substantial evidence and there is a rational connection between the 
facts and the policy recommendation, the condition should be given 
substantial deference by the Commission. I agree, however, that federal 
agency conditions should be sensitive to cost impacts, and that costs 
should bear a thoughtful relationship to the environmental return. I 
agree that the Commission should not be placed in the position of 
having to accept a ``Cadillac'' condition or not license a project.
    Closely related to the report's recommendation of a ``one-stop 
shopping agency'' is its discussion concerning the effect of three 
court decisions on the Commission's ability to incorporate or reject 
state water quality certifications and FPA Section 18 fishway 
prescriptions in balancing developmental and environmental concerns. A 
proposed environmental action may also adversely affect other 
environmental resources. For instance, in a recent case involving an 
interpretation of the Endangered Species Act, a proposal for fish 
ladders upstream to a reservoir were opposed by resource agencies 
concerned that the introduction of a new species could adversely affect 
existing fish stocks. These three judicial decisions are as follows:

 PUD NO. 1 of Jefferson County v. Washington Department of 
        Ecology, 511 U.S. 700 (1994), where the Court held that a State 
        imposing a condition under the Clean Water Act could regulate 
        not only water quality, such as its chemical composition, but 
        also the method by which water is released by a project.
 American Rivers I v. FERC, 129 F.3d 99 (2nd Cir. 1997), where 
        the court held that the Commission lacked authority to 
        determine whether conditions submitted by state agencies 
        pursuant to Section 401 of the Clean Water Act were beyond the 
        scope of that section.
 American Rivers II v. FERC, 187 F.2d 1007 (9th Cir. 1999), 
        where the court ruled that the Commission lacked authority in 
        individual cases to determine whether prescriptions submitted 
        under Section 18 of the FPA are in fact fishways.
    I agree with the Staff report that the Commission may be hampered 
in performing its balancing obligation if section 401 Clean Water Act 
certifications and Section 18 fishways prescriptions continue to 
hamstring our ability to weigh competing choices and values. This is at 
the heart of my decision making role as a Commissioner of this agency. 
Congressional intervention may be necessary to refocus and underscore 
the Commission's role as the ultimate authority in balancing competing 
concerns in hydroelectric license matters.
    Thank you for the opportunity to submit this written statement, and 
I will be pleased to respond to any questions.
                                 ______
                                 
  Prepared Statement of Donald Sampson, Executive Director, Columbia 
                   River Inter-Tribal Fish Commission
    Thank you for the opportunity to offer testimony regarding National 
Energy Policy and Hydroelectric Power. My name is Donald Sampson; I am 
the Executive Director of the Columbia River Inter-Tribal Fish 
Commission (CRITFC) in Portland, Oregon. I believe we share common 
desires to find solutions to our national energy problems that are 
affordable and environmentally sound. The CRITFC tribes are developing 
a tribal energy vision and have the expertise and the resources 
available in the Northwest to alleviate the region's energy shortages. 
Additionally, tribes and tribal lands across the nation hold vast 
resources and stand ready to offer solutions to the nation's energy 
problems. At the same time, the tribes are prepared to be good stewards 
of the land and plan for the long-term sustainability of the national 
economy through wise energy planning.
    Formed by resolution of the Nez Perce Tribe, the Confederated 
Tribes of the Umatilla Indian Reservation, the Confederated Tribes of 
the Warm Springs Reservation of Oregon, and the Confederated Tribes and 
Bands of the Yakama Nation, the Columbia River Inter-Tribal Fish 
Commission (CRITFC) provides coordination and technical assistance to 
ensure that the resolution of outstanding treaty fishing rights issues 
guarantees the continuation and restoration of our tribal fisheries 
into perpetuity. Since 1979, CRITFC has contracted with the BIA under 
the Indian Self-Determination Act (Public Law 93-638) to provide this 
technical support. The tribes' technical experts have identified where 
federal and state resource managers have fallen short in protecting and 
restoring the habitat and production of all salmon stocks. Wy-Kan-Ush-
Mi Wa-Kish-Wit, the Spirit of the Salmon, the tribes' restoration plan, 
the only gravel to gravel salmon restoration plan in the Columbia 
Basin, identifies threats to salmon, proposes hypotheses based upon 
adaptive management principles to address those threats, and provides 
specific recommendations and practices that must be adopted by natural 
resource managers to meet treaty obligations. Wy-Kan-Ush-Mi Wa-Kish-Wit 
can be viewed at www.critfc.org. These four tribes have rights reserved 
by treaties with the United States of America 1 to take fish 
destined to pass the tribes' usual and accustomed fishing places. This 
right covers fish originating in the Columbia River Basin. Protection 
and enhancement of those streams that provide spawning and rearing 
habitat and migration corridors for these fish are of critical 
importance to the tribes and the region. The CRITFC provides technical 
and legal support to the tribes to carry out those goals.
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    \1\ Treaty with the Yakama Tribe, June 9, 1855, 12 Stat. 951; 
Treaty with the Tribes of Middle Oregon, June 25, 1855, 12 Stat. 963; 
Treaty with the Umatilla Tribe, June 9, 1855, 12 Stat. 945; Treaty with 
the Nez Perce Tribe, June 11, 1855, 12 Stat. 957.
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    In 1855, the United States entered into treaties with the Nez Perce 
Tribe, the Confederated Tribes of the Umatilla Indian Reservation, the 
Confederated Tribes of the Warm Springs Reservation of Oregon, and the 
Confederated Tribes and Bands of the Yakama Nation to ensure the mutual 
peace and security of our peoples. For the four tribes' cession of 
millions of acres, the United States promised to protect and honor the 
rights and resources the tribes reserved to themselves under those 
treaties. Those resources, among them our most treasured resource, the 
salmon, are being destroyed largely by hydroelectric projects on the 
Columbia and Snake Rivers. The salmon are also imperiled by relicensing 
processes at those dams that seek to delay necessary environmental 
analysis and changes to hydro structures and operations under the 
Federal Power Act. Existing license holders, who use process and delay 
to short change environmental protections necessary to insure the 
continued existence of salmon, are trampling upon our rights, our 
culture and our religious beliefs that are tied to the salmon.
    The Treaty Tribes grow weary when our expertise to protect our 
treaty resource is ignored, when our input in public processes is 
ignored, when our negotiations lead to settlements and those 
settlements are ignored, when our good faith efforts to cooperate and 
participate in decision-making forums are ignored, and when the 
treaties signed by the United States Government are ignored in order to 
protect the unreasonable economic interests of dam owner/operators. The 
Columbia River Treaty Tribes will strongly oppose any effort to 
expedite the dam relicensing process that will lessen environmental 
analysis and protection of salmon at hydro projects, as well as any 
effort to diminish tribal and public input during relicensing. The 
Columbia River Treaty Tribes will oppose any effort to cripple the 
jurisdiction of the federal agencies that have the trust responsibility 
to protect reservation lands and fish and wildlife through mandatory 
license conditions. Any compromise of the Department of Interior's 
authority under section 4(e) of the Federal Power Act to protect 
reservation lands and treaty resources will obstruct the obligation of 
the United States to ``secure'' our treaty rights. Any compromise of 
fish and wildlife agencies' authority under section 18 of the Federal 
Power Act to prescribe fishways to protect treaty resources will also 
be seen as an attempt to interfere with our treaty rights. Reducing 
cost and time in relicensing at the expense of the public, the natural 
resource or the federal agencies with jurisdiction will be seen as an 
abrogation of the trust responsibility and the treaties entered into 
between the tribes and the United States government.
    With that said, the CRITFC tribes are developing a Northwest Tribal 
Energy Vision that will simultaneously provide the region with 
affordable energy solutions while taking energy policy and development 
off the backs of salmon and off the Columbia and Snake Rivers. Our 
energy solutions complement the national recommendations of the Inter-
Tribal Energy Network. Tribes currently have twenty percent of the 
Nation's energy resources on their lands. However, on average, tribal 
citizens spend more of their income on energy, have the highest 
percentage of homes without electricity, have the least control over 
quality of service, and are experiencing two to three times the 
national population growth. Northwest Treaty Tribes, along with the 
aforementioned impacts, are losing their treaty-reserved salmon 
resources to poor energy planning and policy.
    Through the national Inter-Tribal Energy Network, draft legislation 
will be introduced that will help the nation address its energy 
shortages through development of tribal energy resources that are cost 
effective and offer opportunities for joint partnerships. This will 
also help tribes to serve tribal members with reliable energy and will 
foster economic development on tribal lands and promote sovereignty and 
self-sufficiency. The draft legislation envisions establishing an 
Office of Indian Energy in the Department of Energy. Critical to this 
recommendation is significant funding made available to the Office of 
Indian Energy for tribes to ascertain their energy resources and the 
best way to develop those resources. Also vital is the ability to bring 
resources on-line in an expedited fashion using interagency cooperation 
while protecting environmental quality.
    The Northwest Tribal Energy Vision is premised on the idea of 
promotion of energy development that will serve Northwest energy needs 
while protecting the tribes' treaty-reserved resources. It allows for 
faster siting of projects with enhanced value on tribal lands; allows 
for distributed generation opportunities to meet rural loads; allows 
for opportunities for transmission siting on tribal lands; and 
addresses key fundamental concepts to protect the tribes' treaty 
rights. Energy policy and development must not continue to diminish the 
tribes' treaty-reserved resources. Energy policy and development should 
no longer excessively rely on the Columbia and Snake Rivers. Energy 
policy must get off the backs of salmon. Our treaty-reserved resources 
continue to be sacrificed for the sake of bad energy planning.
    The current energy problem exists because of poor planning. 
Conservation and alternative energy development aggressively pursued in 
the 1980's was abandoned by the region and FERC in the 1990's. Poor 
planning has pushed salmon to the brink of extinction and will cause 
further environmental degradation. The salmon's precipitous decline has 
been known for decades and yet new energy development from sources off 
the river to meet demand has lagged. Substantial generation in 
California has been curtailed in order to drive up prices, but it could 
alleviate immediate pressures to run the Columbia River without regard 
to salmon if that generation was made available at a reasonable price. 
Power generation from the Columbia River hydrosystem is completely 
dependent upon the uncertainties of precipitation and runoff timing and 
is, as has been shown this year, not reliable. The lack of adequate 
precipitation is always a potential limiting factor and contingencies 
have not been developed to adequately mitigate for that risk.
                            general comments
    Anadromous fish stocks continue to decline. Current reports 
estimate that Snake River salmonids will be extinct by the year 2016. 
Recent analysis by the National Marine Fisheries Service indicates the 
Mid-Columbia River stocks are declining at a rate greater than Snake 
River stocks. Most of the salmon stocks in the Columbia River Basin are 
listed under the Endangered Species Act (ESA) as threatened or 
endangered. More stocks are on their way to being listed under the ESA. 
Hundreds of dams and impoundments on the Columbia and Snake Rivers and 
tributaries have been the major factor in this decline. While 
hydropower has brought energy benefits to the country, there was very 
little foresight as to the environmental consequences when the dams 
were built. Dams cause significant damage to aquatic and riparian 
environments by altering the physical, chemical and biological 
processes of river systems. We have learned much since these dams were 
first licensed. And now that dams are in the relicensing cycle, we must 
apply what we have learned to make the dams more suitable to what we 
now understand. Reducing cost and time in the licensing process must 
not make it more difficult for federal and state agencies to ensure 
that the managers of hydroelectric power facilities adequately mitigate 
for or minimize their impacts.
    The Columbia River Treaty Tribes have greatly suffered under the 
effect of hydropower development and operations for many decades. Our 
lands have been diminished by hydropower. Our cultural resources have 
been diminished by hydropower. Our fisheries have been diminished by 
hydropower. Our very way of life has been diminished by hydropower. Our 
fishing bands have been displaced from their usual and accustomed 
fishing villages and struggle under very poor living conditions in 
extreme poverty. Socioeconomic studies funded by the Northwest Power 
Planning Council indicate that Columbia River tribal members have per 
capita incomes of 40-60% of non-tribal members, have rates of 
unemployment and poverty three to four times higher than non-tribal 
members and have mortality rates that are twice as high as non-tribal 
members. Much of this disparity in the tribal standard of living and 
health and well-being is due to the loss of the salmon resource. In 
effect, in less than 100 years much of the salmon wealth of the 
Columbia River has been conscientiously taken away from tribal people 
and transferred to non-tribal people in the form of hydroelectrical 
generation.
    The Columbia River Treaty Tribes signed treaties in 1855 by which 
the United States agreed to secure the right to take fish at all usual 
and accustomed fishing stations. The fishing right means more than the 
right of Indians to hang a net in an empty river. The Columbia River 
Treaty Tribes have adopted a salmon recovery plan entitled Wy-Kan-Ush-
Mi Wa-Kish-Wit, the Spirit of the Salmon, that comprehensively 
describes the actions that must be taken to restore fish and wildlife 
and make progress toward meeting the tribes' reserved Treaty rights. 
Reducing the cost and time of relicensing must not block the federal 
agencies that have the legal authority and trust responsibility to 
protect the tribes' treaty rights and resources.
    Federal fish and wildlife agencies were given authority under the 
Federal Power Act (FPA) to use their expertise during dam licensing to 
protect the resources in their charge. Section 4(e) and 18 authority 
was given to the federal agencies precisely because they have the 
expertise to deal with the particular resources at issue and the 
ability to develop the specific environmental analysis necessary to 
protect that resource. The resource agencies' authority to protect the 
uses of reserved lands is an integral part of the FPA licensing scheme. 
While the FPA allowed licensing of private hydro facilities on federal 
lands, it also contemplated that the resource agencies would possess 
the necessary expertise to ensure that those facilities would not 
interfere with protection and use of those lands.
    The mandatory authority of the resource agencies is crucial to the 
protection of federal lands and resources these agencies are charged 
with administering, including the protection of tribal trust resources 
consistent with established federal Indian law and policy. The federal 
agencies play a critical role in protecting Indian resources and 
ensuring adequate compensation for the use of tribal reservation lands. 
A threat to the federal agencies' authority to protect the Columbia 
River Treaty Tribes' treaty resource threatens our treaty rights, 
threatens tribal sovereignty, and undermines the agencies' ability to 
meet their federal trust responsibility. We rely on the Department of 
the Interior in its fiduciary role to protect our treaty resources in 
relicensing. We also rely on the fish and wildlife agencies to protect 
the resources in their charge. Reducing time and cost in relicensing 
must not deny Interior and the other agencies the ability to meet their 
trust obligation to protect our rights and resources. The tribes will 
consider reduction of time and cost that hinders the jurisdictional 
agencies to protect the treaty resources as an attack on our reserved 
rights.
    The current attempts to expedite hydroelectric dam relicensing 
characterize the need as an energy issue and a need to improve the 
hydroelectric licensing process. However, we all know the issue is 
different and much broader. It is a natural resource issue and must be 
looked at as comprehensively as possible. The natural resource at stake 
will be locked up in new hydropower licenses for 30 to 50 or more 
years. If we don't get it right now, the natural resource may be gone 
before we have the opportunity to revisit the issue as witnessed in the 
coming Snake River extinctions. We have the moral and ethical duty to 
respond to this issue in the public interest to protect the natural 
resource. The Columbia River Treaty Tribes believe attempts in Congress 
to reduce the time and cost of relicensing will make protection of the 
natural resource and tribal concerns more difficult or impossible.
    The Columbia and Snake Rivers and their tributaries as well as all 
navigable waters of the United States are public resources. A license 
to operate a hydroelectric project is a privilege, not an entitlement 
or a right. It is the responsibility of the federal government and its 
agencies, including FERC, to protect the public resource using the 
public interest standard articulated in the Federal Power Act and by 
the Supreme Court.2 A license holder will make millions if 
not hundreds of millions of dollars over the term of the license. The 
Grant County Public Utility District in Washington State made $88 
million last year alone from the operation of two dams on the Mid-
Columbia. While it is important to insure that the licensing process is 
cost efficient and time conscious, it is inappropriate to do so at the 
expense of the public resource or public input. The Treaty Tribes 
depend on the federal agencies to insure the treaty resource will be 
recovered, restored and maintained throughout the term of each hydro 
license. It is the obligation of the license holder to maintain a 
healthy river system that supports the ecological processes necessary 
to sustain the treaty resource.
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    \2\ Udall v. Federal Power Commission, 387 U.S. 428 (1967). ``The 
test is whether the project will be in the public interest. And that 
determination can be made only after an exploration of all issues 
relevant to the `public interest,' including future power demand and 
supply, alternate sources of power, the public interest in preserving 
reaches of wild rivers and wilderness areas, the preservation of 
anadromous fish for commercial and recreational purposes, and the 
protection of wildlife.'' Udall, at 450.
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    While license holders have complained about the length and cost of 
the licensing process, nearly all hydroprojects need upgrading to 
protect the public resource. Dams and reservoirs degrade water quality, 
reduce water quantity, displace fish and wildlife habitat, kill fish 
and wildlife, create barriers to migration, provide for the invasion of 
non-indigenous species and generally wreak havoc on the riverine 
ecosystem. These actions curtail the economic viability of each river 
by negatively altering the biological characteristics necessary to 
maintain a healthy river system and anadromous fish. Healthy rivers 
support sustainable, healthy economies with teeming wildlife, natural 
beauty and the promise of a high quality of life.
    All dams need to be modernized to accommodate for damage caused to 
the public resource by hydro operations. We cannot continue to 
sacrifice our rivers for the sake of our insatiable desire for cheap 
hydropower. Our current energy problems are due to misguided energy 
policies that do not take into account the environmental externalities 
of the dams. A short-term fix to increase hydroelectric power 
generation now will have long-term environmental consequences that will 
last for generations. As sovereigns, we must distinguish between 
managing for these short-term inconveniences and preventing the 
realization of the true potential for long-term losses. We need a long-
term comprehensive energy policy that protects our environment through 
the full development of conservation measures and renewable energy 
sources. The Northwest Tribal Energy Vision will accomplish the long-
term energy needs of our nation while protecting the environmental 
heritage of future generations. Free market deregulation will not 
address environmental externalities. Reducing the time and cost of 
licensing must not come at the cost of the environment.
                           specific comments
    The question has been posed: how can the cost and length of 
hydroelectric relicensing be reduced? Relicensing is a major 
undertaking that needs to be afforded maximum effort by the license 
holder and maximum input from federal agencies, states, tribes and the 
public. There are a number of aspects concerning relicensing that could 
be changed to afford a more complete and comprehensive process while 
likely reducing time and cost.
    Currently, license holders are often reticent to perform analysis 
and studies concerning the impacts of dams on the environment and fish 
and wildlife due to cost and because the analysis will show the need to 
modernize the dam at the owner's expense. These studies are necessary 
to provide a complete picture of the present and future impacts to the 
public resource. License holders create delay while refusing to do the 
necessary analysis or by providing insufficient information for 
agencies to develop terms and conditions in a timely and complete 
manner and often must be persuaded through costly and time consuming 
legal action. There is little incentive for the license holder to do 
the right thing by performing environmental analysis early in the 
process. FERC should set specific standards and timelines for study 
designs and implementation and enforce them, including those studies 
necessary for other agencies to develop their conditions, 
prescriptions, and recommendations. This will ensure that dam owners do 
not prevent or delay effective license conditions by not providing 
needed information.
    Additionally, delay works to the benefit of the license holder 
because the termination of the original license period is followed by 
annual licenses with the same terms as the original license. The 
environment and invaluable natural resources continue to bear the 
burden in these cases while the license holder is protected 
indefinitely. By allowing annual licenses, the United States grants the 
license holder a benefit at the tribes', the public's and the 
environment's expense. As fiduciary to the tribes and the public trust, 
this is unacceptable policy and must change. To eliminate this 
incentive, FERC should set interim conditions to protect natural 
resources on annual licenses in situations where applicants have 
deliberately failed to complete studies in a timely manner.
    Reducing cost and time in relicensing must not reduce environmental 
protection. Above all, environmental needs as discerned by the 
mandatory conditions of the federal agencies must form a floor above 
which FERC may balance the need for power. The tribes' treaty rights 
and the public resource must be protected first. The jurisdictional 
federal agencies with mandatory conditioning authority have the 
expertise necessary and the mandate to protect the public resource. The 
mandatory conditioning authority of the jurisdictional federal agencies 
must be preserved to protect the tribes' treaty rights, tribal lands, 
and the public resources. A May, 2000 GAO report on relicensing 
concluded that FERC does not have sufficient information to identify 
which reforms are necessary either legislatively or administratively to 
the relicensing process. Additionally, the report found FERC does not 
have sufficient data to evaluate the effectiveness of recent reforms. 
Recently, FERC compiled a list of actions it would be taking to 
increase electric generation in the Western United States.3 
Based upon this list of actions, on June 1, 2001, FERC issued an Order 
Authorizing Temporary Increase in Generation in Light of Electricity 
Exigencies in Western United States. The result of this order was to 
suspend an existing settlement agreement between Grant County Public 
Utility District and the Mid-Columbia Joint Fisheries Parties 
4 that allowed spill protection for severely depressed 
salmon stocks in the Mid-Columbia River in Washington State. This 
decision was not based on good science or on input received from tribes 
and federal and state resource agencies. FERC's decision was indicative 
of the problems outlined in the GAO report. Meanwhile, numerous parties 
have been engaged over the last year in the Electric Power Research 
Institute effort to develop administrative solutions to this problem 
and an Interagency Task Force also developed solutions to the 
relicensing process. These solutions should be given an opportunity to 
work. This is the right direction to determine the best path to reform.
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    \3\ FERC issued these actions in Removing Obstacles to Increased 
Electric Generation and Natural Gas Supply in the Western United 
States.
    \4\ The Joint Fisheries Parties consist of sovereign entities that 
have mandated authorities for protection of fish and wildlife and 
include the Yakama Nation, the Confederated Tribes of the Umatilla 
Indian Reservation, the Colville Confederated Tribes, the Washington 
Department of Fish and Wildlife, NMFS and the USFWS.
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    In May 2001, FERC released a 603 Report, which responded to 
Congress' requirement ``to undertake a comprehensive review of 
policies, procedures and regulations for the licensing of hydroprojects 
to determine how to reduce the cost and time of obtaining a license.'' 
The Report was a product of the Commission staff, not the Commission. 
We note that the Commission itself, with its authorities, did not 
endorse the Report. While not inclusive of all the Report 
recommendations, we find the following as serious shortcomings that 
reverse resource protection requirements called for in the Electric 
Consumer Protection Act of 1986 and the Clean Water Act. The following 
Report recommendations would compromise environmental protection and 
treaty-reserved resources and are unacceptable.

 The Report recommends ``one stop shopping'' at FERC for all 
        federal license authorizations. This would allow FERC to reject 
        mandatory license conditioning if they were inconsistent with 
        FERC's public interest determination. Recent attempts to change 
        the Federal Power Act's public interest standard goes against 
        decades of policy and administrative development as well as 
        previously noted Supreme Court rulings. This would override 
        mandatory license conditioning for natural resource protection 
        by the Department of Interior and the Bureau of Indian Affairs 
        on behalf of the tribes.
 The Report recommends that the Departments with mandatory 
        license conditioning consider the full range of public interest 
        considerations when conditioning the license for resource 
        protection. This would require the Departments to ``balance'' 
        resource protection with project economic gains. This is 
        redundant as FERC is already charged to balance project 
        economics with resource protection, with the floor established 
        by the Departments.
 The Report recommends amending the Clean Water Act in license 
        proceedings. Specifically, water quality certification would be 
        limited to physical and chemical parameters--not biological 
        parameters. Instream flows would be given non-mandatory 10(j) 
        status. State and tribal water quality authorities would no 
        longer be mandatory.
 The Report criticizes the recently developed definition of a 
        fishway and proposed fishway policy developed by the NMFS and 
        USFWS. The Report recommendations would restrict the agencies' 
        fishway definition which would diminish an applicant's 
        obligation to provide adequate fish passage.
    Hydroelectric projects cannot and will not last forever. A license 
holder must not be allowed to walk away from a hydroelectric project 
when removal of the project is necessary. FERC must require each 
applicant submit a plan that details how removal will be accomplished 
if such an event is required. FERC must also require the applicant 
create a fund to pay for such removal. This process is required for 
nuclear power projects. Hydroelectric projects have caused significant 
environmental damage that should not be left to the federal taxpayer to 
bear.
    Where the Alternative Licensing Procedure (ALP) is one possibility 
for early input from interested parties, it is important to stress that 
no collaborative process is successful without meaningful participation 
by concerned parties. As relicensing is a long-term process requiring 
intensive resource commitment, it is necessary for the applicant to 
provide funding for tribes and other groups to fully participate in 
order to expedite the process with full input. Otherwise, inadequate 
input or input only from resource rich participants can bias the 
process. This is not a satisfactory outcome and should be changed. FERC 
should require funding for participation by tribes and public interest 
groups either by the applicant or by FERC. Early participation will 
lead to a faster relicensing process.
    Where the Traditional Licensing Process is more appropriate, FERC 
must perform environmental analysis in a timely manner. Final decisions 
and rehearing requests must be expedited where delay would further harm 
the environment. Deadlines must be consistent and adhered to within a 
reasonable amount of time. Mandatory conditioning agencies should set 
and follow strict guidelines and timelines with periodic opportunities 
for review. Where a license applicant is the cause of delay, the 
federal fish and wildlife agencies, states and tribes should document 
such delay and be afforded further time to develop conditions.
    As a federal bureaucracy, FERC could make institutional changes to 
expedite relicensing proceedings. Currently, FERC staff is assigned to 
cover project relicensing proceedings but is assigned to different 
issues on the same project. Because of exparte rules, these staff 
cannot confer on issues. For example, one staff member is assigned on 
the Rocky Reach Hydroelectric Project relicensing proceeding in 
Washington State, while another staff member is assigned to the Mid-
Columbia Habitat Conservation Plan process, which directly involves 
Rocky Reach relicensing. The result is confusion among FERC staff on 
complementary issues and prolonging decisions on necessary studies and 
procedures.
    FERC could significantly reduce license amendment and licensing 
delays by expediting adoption of settlement agreements between 
applicants, tribes, state and federal resource agencies and NGOs into 
license terms and conditions. For example, FERC has delayed acceptance 
of the Condit Hydro Project Settlement Agreement for twenty 
months.5 FERC should establish firm timelines in reviewing, 
conducting applicable environmental analyses, and approving consensus 
settlement agreements to avoid delays in license modification and/or 
licensing proceedings.
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    \5\  After years of negotiation, a comprehensive settlement 
agreement between the applicant, PacifiCorp, the Yakama Nation, CRITFC 
and several federal and state resource agencies and environmental 
groups was submitted to FERC for approval in October, 1999. In May 
2001, FERC held a public meeting to discuss the settlement agreement, 
but still had not accepted the settlement agreement, nor had FERC begun 
environmental review on the agreement. The status of the agreement 
remains uncertain within the FERC and has left the applicant and 
intervenors guessing as to what action FERC will take. In the meantime, 
salmon restoration for an entire river basin remains on hold.
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    Finally, federal energy policy has taken a back seat to the desire 
of market driven forces. As mentioned, the market place does not deal 
well with environmental externalities. Our current west coast energy 
problems are due in large part to misguided energy policies. The 
federal government must develop long-term solutions that steer us away 
from environmental degradation and unilateral dependence on river 
generated power. We need full development of conservation measures and 
renewable energy sources. Energy policy must be comprehensive and 
forward looking, not rooted in dependence on hydroelectric power that 
has caused degradation to our public resources at our expense and that 
of future generations.
                               conclusion
    In conclusion, I ask that you work closely with the tribes to 
insure their treaty rights are protected in this and all processes 
where FERC has jurisdiction. There is an existing statutory framework 
for hydroelectric dam relicensing that is sound, and workable. Wherever 
shortcomings may exist in the current process, solutions should be 
crafted administratively and with substantial public input. The federal 
government must protect the treaty tribes and public resources of our 
waterways. To do anything less would gravely dishonor the promises that 
the United States Government made with the tribes over 150 years ago. 
Further degradation is unacceptable and will be vigorously opposed by 
the treaty tribes.
                                 ______
                                 
 Prepared Statement of Hon. Ann Veneman, Secretary, U.S. Department of 
                              Agriculture
    Mr. Chairman and Members of the Subcommittee: Thank you for the 
opportunity to comment on hydropower and the hydropower licensing 
process.
    As stated in the May 2001, National Energy Policy: Report of the 
National Energy Policy Development Group, ``Hydropower has significant 
environmental benefits. It is a form of low-cost electricity generation 
that produces no emissions, and it will continue to be an important 
source of U.S. energy for the future. Given the potential impacts on 
fish and wildlife, however, it is important to efficiently and 
effectively integrate national interests in both natural resource 
preservation and environmental protection with energy needs''.
    The Department of Agriculture (USDA) and the Forest Service (FS) 
recognize the increasing national demand for energy and are committed 
to assisting in the development of solutions to increase energy 
production while protecting national forest resources. We have made the 
licensing of hydropower projects on National Forest System (NFS) lands 
a very high priority.
    Of the approximately 200 federally licensed projects due for 
relicensing in the next ten years, more than half are partially or 
wholly within national forests, while most of the remainder lie in 
watersheds that contain national forests. For projects on national 
forests, the Forest Service must consider conditions in hydropower 
licenses ``necessary for the adequate protection and utilization of--
the national forest (Section 4(e) Federal Power Act (FPA)), and Wild 
and Scenic rivers (Section 7, FPA). In addition, all federal agencies 
have a trust responsibility to Indian tribes. If tribal lands or 
resources are affected by hydropower projects, license conditions may 
also be required.
    We recognize that hydroelectric energy production is a valid use of 
NFS lands. Through careful coordination with Indian tribes, states, and 
other affected parties, hydroelectric facilities can be operated to 
mitigate potential adverse impacts upon water quality, fisheries, and 
wildlife resources while meeting important public needs and 
obligations. Also in many cases, hydroelectric development enhances 
recreational opportunities such as fishing, boating, and whitewater 
rafting.
    Since hydropower licenses are for terms of 30 to 50 years, it is 
important to consider necessary and appropriate conditions at the time 
of licensing to insure that appropriate resource management measures 
are included in the license. The Forest Service is very active in these 
licensings, working with the licensees, Indian tribes, federal and 
state resource agencies, the Federal Energy Regulatory Commission 
(FERC), and other users of NFS lands in a collaborative and productive 
manner.
    We have created national and regional Hydropower Assistance Teams 
that facilitate FS involvement with licensees, Indian tribes, national 
forest stakeholders, and other agencies. The Forest Service is 
determined to effectively participate in both alternative and 
traditional licensings.
    In addition, the USDA and the FS, along with other federal agencies 
are taking an active role in a number of ongoing national processes 
that are aimed at improving hydropower licensing, industry 
relationships, protecting, and enhancing our natural resources. 
National processes include the Interagency Task Force and its Federal 
Advisory Committee, as well as the hydropower-industry sponsored 
Electric Power Research Institute's National Review Group. We have met 
with various members of the hydropower industry and attended industry 
conferences around the country. During this year's review of our 
regional hydropower programs, the FS invited licensees and other 
stakeholders to participate and comment on the Forest Service's 
performance in hydropower licensing.
    In the interest of good communication and improved hydropower 
licensing, the FS ensures at least three opportunities to comment on 
its license terms and conditions before such conditions are finalized. 
The first opportunity is provided through the FERC licensing process 
when parties to the FERC licensing can comment upon the Forest Service 
preliminary conditions in response to the license application. The 
second opportunity for comments to FERC is upon draft conditions in 
response to FERC's NEPA process. The third opportunity for comment is 
offered to the general public in the established Forest Service NEPA 
process.
    We believe that early planning and innovative approaches will 
insure that the hydroelectric licensing process will provide both 
energy and appropriate resource management on our national forests.
                                 ______
                                 
      Prepared Statement of William T. Hogarth, Acting Assistant 
 Administrator for Fisheries, Office of Protected Resources, National 
         Marine Fisheries Service, U.S. Department of Commerce
    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me to submit testimony for the record on hydro licensing as it 
is related to fishery management. I am William T. Hogarth, Acting 
Assistant Administrator for Fisheries in the National Oceanic and 
Atmospheric Administration/Department of Commerce.
    I would like to thank the Subcommittee for the opportunity to 
address NMFS's role in the hydroelectric licensing process. Hydropower 
is a clean, domestic, and renewable source of electricity. The 
Administration seeks to increase electricity generation from hydropower 
plants. NMFS is committed to accomplishing these gains in an 
environmentally sound manner.
                   impacts of hydropower on fisheries
    Hydroelectric dam construction and operation can have significant 
impacts on anadromous fish species, including Pacific and Atlantic 
salmon, shortnose sturgeon, and American shad. Changes in habitat, fish 
passage, water quality, and downstream flows are the biggest direct 
effects.
    Fortunately, hydroelectric dam impacts can often be significantly 
reduced through operational and structural modifications. Upstream and 
downstream fish passage can be improved with fish passage facilities 
such as fish ladders, fish screens, and trap and transport operations. 
Temperature impacts can be reduced through releasing cool water when it 
is needed, and habitat and migratory rates can be improved with 
modified stream flows.
                  nmfs role in hydropower relicensing
    Several statutory mandates provide the Department of Commerce (DOC) 
with authority to protect anadromous fish affected by Federal Energy 
Regulatory Commission (FERC) licensed hydroelectric projects. In DOC, 
these responsibilities are delegated to NMFS:
Federal Power Act
 Section 18 (16 USC 811)--The DOC and the Department of the 
        Interior have authority to require fish passage at 
        hydroelectric projects.
 Section 10(j)(16 USC 803(j))--NMFS, Fish and Wildlife Service 
        (FWS), and state resource agencies can provide recommendations 
        to protect, mitigate damages to, and enhance fish and wildlife, 
        including related spawning grounds and habitat.
 Section 10(a)(16 USC 803(a))--Resource agencies can provide 
        recommendations for ensuring that a project is best adapted to 
        comprehensive plans for developmental and non-developmental 
        resources.
 Small Hydropower and Conduit Exemptions 16 USC 823(a) and 16 
        USC 2705--NMFS, FWS, and state agencies can provide conditions 
        to prevent loss of or damages to fish and wildlife.
 Indian trust responsibilities, as outlined in various laws.
Endangered Species Act (ESA)
    Under Section 7(a)(2) of the ESA (16 USC 1536 (a)(2)), if their 
action may affect listed species, federal agencies are required to 
consult with FWS and/or NMFS, as appropriate, to ensure that any 
federal action is not likely to jeopardize the continued existence of 
any threatened or endangered species, or adversely modify critical 
habitat designated for those species.
Magnuson-Stevens Fishery Conservation and Management Act
    Federal action agencies must consult with NMFS if their actions may 
adversely affect essential fish habitat; NMFS will provide EFH 
conservation recommendations.
Fish and Wildlife Coordination Act
    Federal action agencies must consult with NMFS and FWS if their 
action modifies a water body; NMFS and FWS provide recommendations to 
prevent adverse impacts on fish and wildlife.
National Environmental Policy Act
    NMFS, other resource agencies, and other stakeholders may provide 
comments on FERC Environmental Assessments and Environmental Impact 
Statements prepared for hydroelectric project licensing decisions.
                         administrative reforms
    NMFS has been working with FERC and the other federal resource 
agencies to streamline and improve the hydroelectric facility licensing 
process. These efforts include participating in the Interagency Task 
Force to Improve Hydropower Licensing (ITF), developing a proposed 
Interagency Policy on Section 18 Fishway Prescriptions, and 
participating in the National Review Group of the Electrical Power 
Research Institute.
                      interagency task force (itf)
    In March 1998, NMFS, other resource agencies, and FERC established 
the ITF in order to adminstratively reform the licensing process. The 
ITF efforts culminated in the development of seven reports containing 
recommendations to improve and streamline agency licensing practices. 
These reports can be viewed at http://www.doi.gov/hydro. The reports 
address such issues as: facilitating and streamlining noticing 
procedures; coordinating the NEPA review process; improving the process 
by which studies are identified and conducted; preparing trackable and 
enforceable license conditions pursuant to Section 401 of the Clean 
Water Act; and coordinating and streamlining FERC licensing with the 
Endangered Species Act Section 7 consultation process.
    The ITF implemented a two-phased outreach strategy through 
interagency meetings in several locations across the country in order 
to ensure integration of the ITF work products into agency licensing 
practices nationwide. Phase I focused on making agency regional 
directors and administrators aware of our commitments. Phase II 
involved meetings throughout the country with regional and field level 
staff, and was completed in May, 2001.
         interagency policy on section 18 fishway prescriptions
    On December 22, 2000, the Departments of the Interior and Commerce 
published for comment a proposed Fishway policy that provides a 
definition of fishways and agency guidance on developing fishway 
prescriptions. The proposed policy is currently undergoing revision 
based on comments received during the public comment period.
 may, 2001 national energy policy, and executive orders 13211 and 13212
    The new National Energy Policy provides recommendations to the 
White House and Congress and addresses numerous issues that relate to 
NMFS's trust resources, including hydropower licensing. Specifically, 
the policy states that ``the President encourages the Federal Energy 
Regulatory Commission and directs federal resource agencies to make the 
licensing process more clear and efficient, while preserving 
environmental goals.'' Three specific recommendations were included: 
(1) support administrative and legislative reforms; (2) direct federal 
resource agencies to reach interagency agreement on conflicting 
mandatory license conditions before they are submitted to FERC; and (3) 
encourage FERC to adopt appropriate deadlines for its own actions. NMFS 
agrees that the process can be improved, and we have been working to 
address all of these issues in the administrative reform efforts 
described above.
    On May 18, 2001, President Bush signed two Executive Orders that 
implement recommendations from the National Energy Policy. Executive 
Order 13211 requires federal agencies to evaluate if a new regulation 
will adversely impact the current energy supply, distribution, or use. 
It also requires agencies to include reasonable alternatives to the 
regulation if the regulation will adversely impact the current energy 
situation.
    Executive Order 13212 requires all executive departments and 
agencies to take appropriate actions to expedite projects that will 
increase the production, transmission, or conservation of energy, to 
the extent consistent with applicable law. Actions should be taken to 
expedite energy-related projects while maintaining safety, public 
health, and environmental protections. An Energy Task Force with a DOC 
representative has been established to monitor and assist the agencies 
in implementing this Executive Order. The process is just getting 
underway, but NMFS is committed to working closely with the Energy Task 
Force to implement its objectives. NMFS is prioritizing available staff 
resources to the extent possible in order to improve interagency 
coordination in critical geographic areas.
    For example, NMFS contacted the California Energy Commission (CEC) 
in order to explore ways to address the Governor of California's 
Executive Order D-26-01, which directed the California Energy 
Commission (CEC) to expedite the permitting of peaking and renewable 
powerplants. Through this developing partnership, NMFS and the CEC are 
crafting strategies for expediting environmental review. Measures 
discussed to date include: 1) packaging or bundling proposed projects 
to streamline cumulative impacts analysis and to reduce redundancy and 
paper work; 2) mitigation strategies for bundled projects, such as 
mitigation banking, conservation easements, and off-site habitat 
restoration; 3) improved information sharing procedures; 4) increased 
staffing, including assigning a single NMFS contact or liaison who 
would be available to the applicants, governmental agencies, NGOs, and 
the public; 5) making resources available to hire consultants to 
conduct specialized analyses such as computer modeling; and 6) measures 
to ensure an open and public process without impacting critical 
timelines. To accomplish these tasks NMFS has assembled an 
interdisciplinary task team and has jointly scheduled regular meetings 
with the CEC that include the U.S. Fish and Wildlife Service, U.S. 
Bureau of Land Management, Environmental Protection Agency, Western 
Area Power Administration, and the U.S. Forest Service. Public 
workshops have also been held.
    Currently, the NMFS Southwest Region is consulting with the CEC 
concerning the Potrero, Huntington Beach, Morro Bay, and El Secundo 
thermal power plants. NMFS is also pursuing ongoing hydropower 
relicensing activities on the Upper American River, Oroville Project, 
Stanislaus multi-project collaborative, the Klamath Relicensing, the 
Big Creek Complex multi-project relicensing and the Poe relicensing.
    In the Pacific Northwest, the NMFS Northwest Regional Administrator 
is working closely with her counterparts at the Bonneville Power 
Administration, Bureau of Reclamation, and U.S. Army Corps of Engineers 
to ensure that the Federal Columbia River Power System is operated in a 
manner that maximizes available energy while protecting threatened and 
endangered salmon species. The NMFS Northwest Region is also working 
closely with state and local energy suppliers, making real-time 
decisions that maximize energy production while minimizing 
environmental impacts for non-federal hydroelectric projects throughout 
the region during this year's historic drought.
                               conclusion
    NMFS is working to ensure that anadromous fish resources receive 
necessary protections, including those provided by the FPA. At the same 
time we are working to ensure a reliable energy supply and to improve 
administrative procedures.
    The FPA requires FERC to make licensing decisions in the public 
interest, and to balance the Nation's need for hydropower with the need 
to protect important natural resources. We will continue our 
collaborative efforts with FERC, the hydropower industry, environmental 
organizations, tribes, and other stakeholders to ensure that the 
hydropower licensing process provides a sound basis for the balancing 
of societal priorities, including the need for healthy habitats and 
productive fisheries. We will also continue our efforts to make 
administrative changes that will make the process work more smoothly.
    Thank you for the opportunity to provide testimony on these 
important issues. For the record, we are also providing a copy of our 
February 1, 2001 letter to FERC commenting on their report submitted to 
Congress pursuant to Section 603 of the Energy Act of 2000 (Public Law 
No. 106-469).
                                 ______
                                 
                       Federal Energy Regulatory Commission
                                                     August 3, 2001
The Honorable Joe Barton
Chairman
Subcommittee on Energy and Air Quality
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515
    Dear Chairman Barton: I was pleased to have had the opportunity to 
testify at the House Energy and Air Quality Subcommittee's June 27, 
2001 hearing on hydroelectric relicensing and nuclear energy.
    Attached you will find my written responses to the questions that 
were asked by you, and Representatives John Dingell and John Shadegg at 
the Subcommittee hearing, to be included in the hearing record. Should 
you need additional information, please do not hesitate to contact me.
            Sincerely,
                                        Curt L. Hebert, Jr.
                                                           Chairman
Enclosure

cc: The Honorable W.J. ``Billy'' Tauzin
   The Honorable John D. Dingell
   The Honorable Rick Boucher
   The Honorable John B. Shadegg
   responses to questions from chairman barton, and representatives 
                          dingell and shadegg
    Question. Encourage the interagency working group to prepare its 
conclusions for review and incorporation into our bill.
    Answer #1: Chairman Barton requested that I and Federal Energy 
Regulatory Commission (FERC) staff encourage the Interagency Hydropower 
Committee (IHC) to provide language for consideration in the Energy and 
Commerce Committee's energy legislation, the Energy Advancement and 
Conservation Act of 2001.
    As explained in my testimony, the IHC was recently established to 
follow up on the work of the Interagency Task Force (ITF). The IHC did 
hold its first meeting on July 24, 2001, after the Subcommittee's June 
27 hearing. Currently, members of the IHC include senior officials from 
FERC, the Departments of the Interior, Commerce, and Agriculture. The 
purpose of the IHC is twofold. First, the IHC would monitor the 
recommendations of its predecessor, the ITF, on improving the 
hydroelectric licensing process. Second, the IHC would address issues 
associated with hydroelectric licensing that remain or that may arise 
later.
    The July 24 IHC meeting was strictly organizational in nature. At 
the meeting, representatives agreed to develop a charter, appoint co-
chairs, and create ad hoc committees to scope out the issues for future 
discussions. Consequently, the IHC has no recommendations to include in 
the energy legislation, since passed by the House of Representatives at 
this time. However, we would be willing to provide the Committee with 
suggested legislative improvements, if requested, in the future.
    Question. Have any licenses been surrendered since FERC began 
relicensing projects in the class of 1993? How many?
    Answer #2: No projects have been surrendered for which the FERC has 
issued new licenses since we began processing the applications for the 
Class of 1993 group of relicenses.
    Question. How many times has the Commission during its activities 
taken the necessary steps to reopen an existing license to assure that 
fish and wildlife protection activities were taken by the licensee 
during the pendency of the one year extension?
    Answer #3: Reopener articles reserve to the Commission the 
authority to require licensees to, among other things, develop 
recreational facilities, protect and conserve fish and wildlife 
resources, and prevent water quality degradation. Almost 50 reopener 
proceedings have been initiated over the past decade. These requests 
include petitions to require the construction of recreational 
facilities, modify reservoir levels, provide fish passage facilities, 
release minium flow for protection of aquatic resources, and to address 
threatened and endangered species issues. Requests to reopen a license 
typically originate from state and Federal fish and wildlife agencies 
or private citizen groups.
    An annual license provides the Commission with no less and no more 
authority to impose new conditions than did the prior license, inasmuch 
as the annual license is required, by section 15(a) of the FPA, to have 
the same terms as the prior license. It therefore follows that, with 
respect to addressing changing environmental conditions and emerging 
environmental concerns, an annual license holds no special 
significance. The very purpose of a reservation of authority, sometimes 
referred to as a ``reopener clause,'' is to enable the Commission to 
deal--at any time during the license term--with environmental concerns 
that may have been unforeseen when the project was originally licensed.
    Attached is a table that identifies the individual reopener 
proceedings initiated by the Commission over the past decade. For the 
most part, these requests have not been processed by the Commission 
when a relicensing proceeding is pending and annual licenses were being 
issued. One reason for this is that resource agencies and citizen 
groups are engaged in the licensing process and look to this process as 
a means of addressing their particular environmental concern. Of the 
requests received to date, all of the reopener requests have been 
received during the term of the license in advance of the license 
expiration date with the exception of the Platte River and the Clyde 
River projects.
    In the former case, the Commission was asked to include in the 
annual licenses for the Kingsley Dam Project (P-1417) and North Platte/
Keystone Diversion Project (P-1835) conditions to protect the 
endangered whooping crane and other listed species. The Commission 
concluded that without interim measures, project operation would 
continue to adversely affect Platte River habitat and impede the 
recovery of the listed species. Since only the North Platte/Keystone 
Project had reopener authority, the Commission required the licensee 
for North Platte/Keystone Project to release instream flows and to 
develop nesting habitat to protect listed species and asked the 
licensee for the Kingsley Dam Project to voluntarily implement the 
measures.
    While the Commission was processing the relicensing of the Clyde 
River Project (P-2306) and after two years of operating under annual 
licenses, the Vermont Agency for Natural Resources (VANR), requested 
that the Commission reopen the license to provide for the removal of 
the Newport No. 11 Dam along with stabilization of the adjacent 
embankment. The Newport No. 11 Dam had been breached by high river 
flows causing the adjacent embankment to collapse. Ultimately, the 
licensee agreed to remove the dam and stabilize the embankment to 
improve downstream water quality and provide upstream passage for 
landlocked Atlantic salmon.
    In the majority of the cases processed to date, licensees generally 
agree to modify the project structures or operation to accommodate the 
request in full or in part and request an amendment of a license to 
accomplish the requested change. In three different cases, licensees 
have opposed, at least initially, implementation of environmental 
protection measures. In these cases, a formal proceeding was initiated. 
In two cases, the Commission required the licensees for the Comtu Falls 
(P-7888) and New York State Dam (P-7481) Projects to operate downstream 
fish passage facilities to ensure the protection of anadromous fish. In 
another case involving the Lower Mokelumne Project (P-2916), after a 
formal proceeding was initiated and Commission staff had prepared a 
Final Environmental Impact Statement, the licensee reached a settlement 
agreement with the resources agencies and requested a license amendment 
that included salmon protection measures.

                      Reopener Proceedings Initiated by the Commission over the last Decade
----------------------------------------------------------------------------------------------------------------
                                                                                                        LICENSE
            PROJECT NO.                 PROJECT NAME              ISSUE          STATUS/ COMPLETION   EXPIRATION
                                                                                        DATE              DATE
----------------------------------------------------------------------------------------------------------------
P-309.............................  PINEY...............  MINIMUM FLOWS.......  12/5/96.............    10/12/02
P-935.............................  MERWIN..............  ENDANGERED SPECIES..  PENDING.............     4/30/06
P-1403............................  NARROWS.............  ENDANGERED SPECIES..  PENDING.............     1/31/23
P-1494............................  PENSACOLA HYDROPOWER  WATER QUALITY.......  7/8/96..............     3/31/22
                                     PROJECT.
P-1835............................  N. PLATTE/KEYSTONE    ENDANGERED SPECIES..  2/14/90*............     6/15/87
                                     DIV. (PLATTE RIVER).
P-1971............................  HELLS CANYON........  ENDANGERED SPECIES..  PENDING.............     7/31/05
P-2071............................  YALE................  ENDANGERED SPECIES..  PENDING.............     4/30/01
P-2111............................  SWIFT NO. 1.........  ENDANGERED SPECIES..  PENDING.............     4/30/06
P-2114............................  PRIEST RAPIDS.......  ENDANGERED SPECIES..  11/9/98.............    10/31/05
P-2150............................  BAKER RIVER.........  ENDANGERED SPECIES..  PENDING.............     4/30/06
P-2157............................  HENRY M. JACKSON....  ENDANGERED SPECIES..  PENDING.............     5/31/11
P-2179............................  NEW EXCHEQUER.......  MINIMUM FLOW........  S3/5/01.............     2/28/14
P-2183............................  MARKHAM FERRY.......  RECREATIONAL          7/21/98.............     5/31/05
                                                           FACILITY.
P-2197............................  YADKIN..............  RESERVOIR ELEVATIONS  7/9/96..............     4/30/08
P-2213............................  SWIFT NO. 2.........  ENDANGERED SPECIES..  PENDING.............     4/30/06
P-2242............................  CARMEN SMITH........  ENDANGERED SPECIES..  PENDING.............    11/30/08
P-2246............................  YUBA RIVER..........  ENDANGERED SPECIES..  PENDING.............     4/30/16
P-2266............................  YUBA BEAR RIVER.....  ENDANGERED SPECIES..  PENDING.............     4/30/13
P-2299............................  NEW DON PEDRO         FLOOD CONTROL.......  12/23/99............     4/30/16
                                     PROJECT.
P-2304............................  BLUE RIDGE..........  ENDANGERED SPECIES..  5/5/98..............    12/31/12
P-2305............................  TOLEDO BEND.........  RESERVOIR LEVELS....  PENDING.............     9/30/13
P-2306............................  CLYDE RIVER PROJECT.  FISH PASSAGE........  7/26/96.............    12/31/93
P-2496............................  LEABURG/WALTERVILLE.  ENDANGERED SPECIES..  PENDING.............     2/28/37
P-2543............................  MILLTOWN............  ENDANGERED SPECIES..  PENDING.............    12/31/06
P-2580............................  TIPPY...............  WETLANDS............  5/1/98..............     6/30/34
P-2597............................  FALLS VILLAGE.......  MINIMUM FLOWS.......  7/19/96.............     8/31/01
P-2597............................  FALLS VILLAGE.......  MINIMUM FLOWS.......  5/9/97..............     8/31/01
P-2599............................  HODENPYL............  WETLANDS............  5/1/98..............     6/30/34
P-2631............................  WORONOCO............  FISH PASSAGE........  1/12/98.............      9/1/01
P-2833............................  COWLITZ FALLS.......  ENDANGERED SPECIES..  PENDING.............     5/31/36
P-2894............................  BLACK BROOK.........  MINIMUM FLOWS.......  7/9/96..............    12/31/20
P-2916............................  LOWER MOKELUMNE.....  MINIMUM FLOW/WATER    11/27/98............     3/31/31
                                                           QUALITY.
P-3021............................  ALLEGHENY RIVER L&D   RESERVOIR ELEVATION.  8/19/99.............     2/28/35
                                     NOS. 8&9.
P-3109............................  BLUE RIVER..........  ENDANGERED SPECIES..  PENDING.............    10/31/39
P-3131............................  BROCKWAYS MILLS       FISH PASSAGE........  9/26/96.............    12/31/32
                                     HYDRO PROJECT.
P-3494............................  ALLEGHENY RIVER L &   RESERVOIR LEVELS....  PENDING.............     6/30/34
                                     D NO. 6.
P-4718............................  COCHECO FALLS.......  FISH PASSAGE........  PENDING.............    12/31/22
P-6066............................  DERBY DAM...........  FISH PASSAGE........  PENDING.............     2/28/26
P-6780............................  DEADWOOD CREEK......  ENDANGERED SPECIES..  PENDING.............     8/31/38
P-7481............................  NEW YORK STATE DAM..  FISH PASSAGE........  7/13/01.............     9/30/37
P-7888............................  COMPTU FALLS........  FISH PASSAGE........  6/1/95..............     6/30/26
P-9195............................  STANLEY CANYON......  MINIMUM FLOWS.......  9/15/97.............     8/31/36
P-9648............................  FELLOWS DAM.........  FISH PASSAGE........  6/4/98..............     6/30/26
P-9649............................  LOVEJOY TOOL COMPANY  FISH PASSAGE........  6/4/98..............     6/30/26
P-9650............................  GILMAN DAM..........  FISH PASSAGE........  6/4/98..............     6/30/26
P-10898...........................  SWEETWATER PROJECT..  FISH PASSAGE........  11/4/97.............     2/28/31
----------------------------------------------------------------------------------------------------------------
*License was amended after the license expired to prevent irreversible environmental damage to the whooping
  crane and other listed endangered species.

    Question. How many dams has the FERC licensed new since 1978 on a 
year-to-year basis?
    Answer #4: In the context of the discussion on the issuance of 
annual licenses, we are providing the number of licensed projects with 
expiration dates from January 1, 1978, to present for which the FERC 
issued annual licenses so that they could continue operating until the 
Commission took final action on their application for new licenses 
(relicenses). The Commission issued 251 annual licenses during this 
period.

------------------------------------------------------------------------
                                                                  Number
                                                                  Issued
------------------------------------------------------------------------
1978...........................................................        3
1979...........................................................        3
1980...........................................................        5
1981...........................................................        1
1982...........................................................        1
1983...........................................................        2
1984...........................................................        8
1985...........................................................        2
1986...........................................................        6
1987...........................................................        0
1988...........................................................       10
1989...........................................................        4
1990...........................................................        1
1991...........................................................        5
1992...........................................................        2
1993...........................................................       12
1994...........................................................      123
1995...........................................................        3
1996...........................................................        7
1997...........................................................        5
1998...........................................................        8
1999...........................................................        6
2000...........................................................       21
2001...........................................................       13
------------------------------------------------------------------------

    Question. How many new dams, large dams, have been licensed by FERC 
since 1990? Also, between 1980 to 1990?
    Answer #5: No projects have been licensed that would have 
authorized construction of 32.8 foot high or higher (see 18 CFR Part 
12) dams since 1990. Further, there are eight licenses that involved 
construction of high dams licensed between 1980 and 1986 and none 
between 1987 and 1990.
    Question. Clarify the water quality certification process and the 
burden on the states in light of the questioning that occurred before.
    Answer #6: Congressman Shadegg asked if I needed to clarify the 
water quality certification process in light of Congressman Dingell's 
earlier questioning. Congressman Dingell had inquired about the 
Commission's difficulty in implementing the Clean Water Act, given that 
hydropower projects do not contribute to river pollution, with the 
exception of perhaps affecting water temperature. The issue is the 
broad scope of the state's authority to require measures beyond those 
needed to protect the physical characteristics of water quality.
    As discussed in my testimony, two court decisions have 
significantly changed the nature of water quality certificate 
conditions. In PUD No. 1 of Jefferson County v. Washington Department 
of Ecology, 511 U.S. 700 (1994) ( Jefferson County), the Supreme Court 
held that a State acting under the CWA could regulate not only water 
quality, such as the physical and chemical composition of the water, 
but water quantity as well, i.e., the amount of water released by a 
project, for State-designated water uses (fishing, boating, etc.). In 
American Rivers [I] v. FERC, 129 F.3d 99 (2nd Cir. 1997), the Court 
held that the Commission lacked authority to determine whether 
conditions submitted by State agencies pursuant to Section 401 of the 
Clean Water Act were beyond the scope of that section.
    The Commission must include those conditions in the license and 
they cannot be evaluated as part of this Commission's comprehensive 
development responsibilities. States do not have an obligation to take 
into account the benefits of hydropower or other competing interests.
    As a result of these court decisions, many of the recommendations 
go beyond physical and chemical characteristics of the water (e.g., 
water temperature, dissolved oxygen, clarity) and deal with designated 
uses (fishing, swimming, fish passage, recreation, instream flow 
releases). The number of recommendations dealing with designated uses 
has more than doubled from 1992 to 1999. This has led to increased 
costs. Most troublesome are the conditions controlling minimum instream 
flows, which have a direct impact on a project's power generation and 
economic viability. In a sample of 24 projects, the median additional 
cost related to controlling instream flows beyond those recommended by 
staff was $27,000, excluding one project with an additional cost of 
$290,000.
    Aside from cost, delay is also a concern. Untimely issuance of 
state water quality certifications is a significant factor in most 
delayed license proceedings and is the most common cause of long-
standing delays. Of 129 currently pending licensing cases, 52 (40 
percent) are currently held up by certification issues.