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) projects1

 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)