FEDERAL ENERGY REGULATORY COMMISSION 

OFFICE OF THE CHAIRMAN 

The Honorable Robert C. Byrd 

President pro tempore 

United States Senate 

Washington, D.C. 20510 

Dear Mr. President: 

WASHINGTON, DC 20426 

July 2, 2002 

I am pleased to enclose the Federal Energy Regulatory Commission's report on 

Government dam use charges under Section 10(e)(2) of the Federal Power Act. Section 

1 0( e)( 4) of the Act requires that every five years the Commission review and report to 

Congress on the appropriateness of the statutory limits on the charges. 

The report recommends that the limits set by Section 10(e)(2) remain unchanged. 

Enclosure 

Best regards, 

Pat Wood, III 

Chairman 
FEES FOR THE USE OF GOVERNMENT DAMS 

THIRD REPORT TO CONGRESS 

OF THE FEDERAL ENERGY REGULATORY COMMISSION 

EXECUTIVES~¥ 

Pursuant to Section 10(e)(1) of the Federal Power Act (FPA), the Federal Energy 

Regulatory Commission (Commission) levies and collects annual charges from the 

licensees of hydroelectric projects that use Government dams or other structures owned 

by the United States. FP A Section 1 0( e )(2) imposes limits on those fees, and FP A 

Section 1 0( e)( 4) requires that the Commission review the appropriateness of these 

statutory limits and report to Congress its recommendations thereon. 

The Commission has reviewed the fees in consideration of their statutory purposes 

and in light of current economic and regulatory trends. We conclude that the fees 

continue to provide reasonable compensation to the Government. The value of electricity 

nationwide has not changed appreciably in fifteen years. While in the last five years 

some licenses for both constructed and unconstructed projects at Government dams have 

been surrendered or terminated, there is no indication that the dam-use fees played a role 

in such outcomes. This report therefore recommends to Congress that the limits set by 

Section 10(e)(2) remain at their present levels. 
Introduction 

FEES FOR THE USE OF GOVERNMENT DAMS 

THIRD' REPORT TO CONGRESS 

OF THE FEDERAL ENERGY REGULATORY COMMISSION 

The Electric Consumers Protection Act (ECP A), which became law on 

October 16, 1986, amended those portions of Section 10(e) of the Federal Power Act 

(FP A) that authorize the Commission to collect annual charges from hydropower 

licensees whose projects make use of Government dams or other structures owned by the 

United States. In 2000, such charges were collected from 68 projects. An additional 20 

projects will be subject to charges when they begin to generate power. 

As amended by ECPA, Section 10(e)(2) of the FPA states: 

In the case of licenses involving the use of Government dams or 

other structures owned by the United States, the charges fixed (or 

readjusted) by the Commission under [Section 10(e)(1)] for the use of such 

dams or structures shall not exceed 1 mill per kilowatt-hour for the first 40 

gigawatt-hours of energy a project produces in any year, 1 112 mills per 

kilowatt-hour for over 40 up to and including 80 gigawatt-hours in any 

year, and 2 mills per kilowatt-hour for any energy the project produces 

over 80 gigawatt-hours in any year. Except as provided in [Section 10(f)], 

such charge shall be the only charge assessed by any agency of the United 

States for the use of such dams or structures. 

Section 10( e)( 4) states: 

Every 5 years, the Commission shall review the appropriateness of the 

annual charge limitations provided for in [Section 10(e)(2)] and report to Congress 

concerning its recommendations thereon. 

This is the third five-year report on the appropriateness of the Section 1 0( e )(2) 

annual charge limitations. The report consists of four sections: a brief discussion of the 

history of charges for the use of Government dams, a review of the amounts collected by 

the Commission for such use, an examination of economic factors bearing on the 

appropriateness of the charge limitations, and the Commission's recommendations 

concerning the need for modification of the charges. 
AD02-08-000 -2-

History of Charges for Use of Government Dams 

Before 1984, the Commission assessed charges for the use of Government dams 

and other United States structures (hereinafter, Government dam use charges) on a caseby-case basis, usually charging licensees 50 percent of the shared net benefit. The 

project's net benefit was defmed as the difference between the value of the power (taken 

as the least expensive alternative power) and the cost of project power (computed from 

the costs of building and operating the project). 

In 1984,1 the Commission simplified its federal dam use charges by adopting 

graduated flat rates, concluding that this method "best balances the statutory goals of 

providing a reasonable return to the Federal government, encouraging hydro~ower 

development, especially small projects, and minimizing costs to consumers. "

2 

In ECP A, Congress adopted the method and rate levels of the Commission's new 

charges, fixed these rates as the maximum allowable, and specified that these rates shall 

be the only federal dam use charges assessed by any agency of the United States. 3 The 

Commission currently levies these maximum values, as it has since adopting them 

in 1984. 

1

Annual Charges for Use of Government Dams and Other Structures Under Part I 

of the Federal Power Act, 49 F.R. 22770 (June 1, 1984), FERC Stats. and Regs., 

Regulations Preambles (1982-1985) ~ 30,570 (May 24, 1984) (Order No. 379). 

2 Id. at p. 30,947. 

3

The Commission also collects: (a) from major licensees (those with installed 

capacities greater than 1,500 kW) annual charges for administration of Part I of the FPA 

and for use of Government lands, pursuant to FP A Section 1 0( e)( 1 ); and, (b) from 

licensees which enjoy headwater benefits from Government projects, charges pursuant to 

FP A Section 1 O(f). The Government dam charges discussed herein constituted about 8.5 

percent of the Commission's total Section lO(e) and (f) annual charge collections for 

fiscal year 200 1. 
AD02-08-000 -3-

Amounts Collected Under-Section 10{e)(2) 

In 2001, 54 of the 1,004 projects under Commission license4 were assessed 

Government dam use charges under Section 10(e)(2) of the FPA. In 1996, 70 projects 

were assessed such charges. The.amounts assessed annually from 1996 through 2001 are 

shown below: 

Year Amount Number of Projects 5 

1996 $6,695,715 70 

1997 6,297,159 59 

1998 7,638,211 58 

1999 7,697,366 68 

2000 6, 710,998 68 

In addition, there are currently 20 projects under license at Government dams 

which are not being charged pending completion of construction and generation of 

power.

6 

4

Projects exempted from licensing under Section 30 of the FP A or Section 405( d) 

of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. § 2705) are not subject 

to Government dam use charges, because they may not use Government dams. 

5

This is the number of projects that were assessed actual annual charges for use of 

a Government dam for the particular year, but the total number of operational and 

constructed projects subject to dam charges is 74. Some projects were granted yearly 

waivers or exemptions from annual charges, while other projects for various reasons had 

no generation in a particular year. 

6

In 1996, there were 28 additional projects licensed but not yet operational. Some 

of these project licenses were subsequently surrendered or terminated due to factors such 

as inability to obtain power sales contracts or to fmance studies required by the license. 
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02-08-000 

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1 In chained ( 1996) dollars, calculated by using gross domestic product implicit price deflators. 

Figure 1. Retail Prices of Electricity Sold by Electric Utilities, 1960-2000. 

Economic Considerations 

The benefit that a licensee enjoys by use of a Government dam depends primarily 

upon the value of the energy produced. The 15 years since ECP A have seen little change 

in the average nationwide retail price of electricity (see Figure 1 above),7 and 

consequently no appreciable change in the benefit to licensees of using Government 

dams. We therefore conclude that the current maximwn charges in FPA Section 10(e)(2) 

continue to provide appropriate compensation to the Government. 

7

For additional tables and details, visit Department of Energy, Energy Information 

Administration Web Page, http://www.eia.doe.gov/fuelelectric.html 
,_ 

AD02-08-000 -5-

Recommendation 

We recommend that the Congress make no change in the annual charge limitations 

of Section 10(e)(2) ofthe FPA.