Licensing Hydropower Projects: Better Time and Cost Data Needed  
to Reach Informed Decisions About Process Reforms (27-JUN-01,	 
GAO-01-921T).							 
								 
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 all the rest. 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, the Federal Energy 
Regulatory Commission (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, 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. This testimony discusses (1) the process	 
used by FERC to issue licenses to construct and to operate	 
nonfederal hydroelectric power projects and (2) FERC's		 
congressionally mandated report on hydroelectric licensing	 
policies, procedures, and regulations.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-921T					        
    ACCNO:   A01276						        
  TITLE:     Licensing Hydropower Projects: Better Time and Cost Data 
             Needed to Reach Informed Decisions About Process Reforms         
     DATE:   06/27/2001 
  SUBJECT:   Electric utility construction			 
	     Environmental policies				 
	     Hydroelectric powerplants				 
	     Licenses						 
	     Regulatory agencies				 
	     Reporting requirements				 

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GAO-01-921T
     
Testimony Before the Subcommittee on Energy and Air Quality, Committee on
Energy and Commerce, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 1: 00 p. m. Wednesday, June 27, 2001
LICENSING

HYDROPOWER PROJECTS

Better Time and Cost Data Needed to Reach Informed Decisions About Process
Reforms

Statement of Barry T. Hill, Director, Natural Resources and Environment

GAO- 01- 921T

Page 1 GAO- 01- 921T

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

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

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).

Page 2 GAO- 01- 921T

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.

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.

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

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. Background

Page 3 GAO- 01- 921T

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.

Page 4 GAO- 01- 921T

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. The Licensing
Process

Is More Complex, Lengthy, and Costly Than It Was 30 to 50 Years Ago

Page 5 GAO- 01- 921T

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 processrelated 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. Participants Cannot

Agree on the Need for, and Type of, Reforms to the Licensing Process

Page 6 GAO- 01- 921T

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
processrelated licensing costs to FERC, FERC does not request licensees to
report these costs.

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.

4 Hydropower Relicensing: Federal Costs Are Not Being Recovered (GAO/ RCED-
00- 107, June 30, 2000). 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

Page 7 GAO- 01- 921T

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
processrelated 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.

 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

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.? Observations on

FERC?s May 2001 Report and Recommendations

Page 8 GAO- 01- 921T

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.

For future contacts regarding this statement, please contact Barry Hill on
(202) 512- 3841. Individuals making key contributions to this testimony were
Erin Barlow, Charles Cotton, David Goldstein, and Richard Johnson. Contact
and

Acknowledgments

(360112)
*** End of document. ***