FEDERAL ENERGY REGULATORY COMMISSION 

OFFICE OFTHE CHAIRMAN 

Honorable Richard B. Cheney 

President 

United States Senate 

S-212 Capitol 

Washington, D.C. 20510 

Dear Mr. President: 

WASHINGTON, DC 20426 

October 8, 2008 

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

on Government dam use charges under Section 10(e)(2) ofthe 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 1 0( e )(2) remain unchanged. 

Enclosure 

cc: The Honorable Jeff Bingaman 

The Honorable Pete Domenici 
FEES FOR THE USE OF GOVERNMENT DAMS 

FOURTH REPORT TO CONGRESS 

OF THE FEDERAL ENERGY REGULATORY COMMISSION 

EXECUTIVE SUMMARY 

Pursuant to Section lO(e)(l) 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. FPA Section 10(e)(2) imposes limits on those fees, and FPA 

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. 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 

FOURTH 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 2007, such charges were collected from 63 projects. An additional 11 

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

As amended by ECP A, Section 1 0( e )(2) of the FP A 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 1 0( 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 1 O(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 1 0( 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 fourth five-year report on the appropriateness of the Section 10(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. 

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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 defined 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 hydropower 

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. 

Amounts Collected Under Section 10(e)(2) 

In 2007, 63 of the 1,014 projects under Commission license4 

were assessed 

Government dam use charges under Section 10(e)(2) of the FPA. In 2001, 55 projects 

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

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

Regulations Preambles (1982-1985) ~ 30,570 (1984) (Order No. 3 79). 

2 !d. at 30,94 7. 

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

capacities greater than 1,500 k W) annual charges for administration of Part I of the FP A 

and for use of Government lands, pursuant to FPA Section lO(e)(l); and, (b) from 

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

FP A Section 1 0( 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 2007. 

4 Projects exempted from licensing under Section 30 of the FPA or Section 405(d) 

of the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 2705 (2000), are not 

subject to Government dam use charges because they may not use Government dams. 
were assessed such charges. The amounts assessed annually from 2001 through 2007 are 

shown below: 

Year 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

Amount 

2,637,642.17 

2,784,258.99 

3,066,286.60 

3,336,364.95 

3,246,341.20 

3,633,206.38 

3,330,769.63 

Number ofProjects5 

55 

65 

66 

62 

64 

67 

63 

In addition, there are currently 11 projects under license at Government dams 

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

power.6 

Economic Considerations 

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

upon the value of the energy produced. The twenty-one years since ECP A have seen no 

appreciable change in the benefit to licensees of using Government dams (see Figure 

below).

7 We therefore conclude that the current maximum charges in FPA Section 

10(e)(2) continue to provide appropriate compensation to the Government. 

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 82. 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 2001 , there were 20 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 finance studies required by the license. 

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

Administration Web Page, http://www .eia.doe.gov/fuelelectric.html. 
Figure 8.10 Average Retail Prices of Electricity 

ToiBI, ~2007 

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i: 6-

/ 2--·---·-----·-' 

Real' 

~";! !: .................. .. 

.r 

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1960 1965 1970 1975 1980 1986 1990 1996 2000 2005 

By Sector, NominaP Prices, 1~2007 

12-

1 In cheunect (2000) dollars. calC'U iated by ustng grots domestic product Implicit pnce deblas. See hble 01 . 1 See ·Nominal Dollars· In G O!Mry. 3 Publk: street and h1ghW11 y li ll ng , interdepartmental sales. olher sales to publiC 

By Sector, 2007 

14-

12-

Residential Commercial 

By Sector, RMI' Prices, 11111Q.2007 

15-

Industrial 

Nomlnaf' • Rear 

Industrial Tra nsportation 

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 

au lhO" Ii . asrlcultu re and irriga!Jon, and tran'Jportat1on Including red roads and rarlways. 

Ncie s: • Taxes are Included. • Bec ause vertical scales differ. graphs should na be 

canpe.red. 

Scorce: Table &.10. 

258 En•rgy Information Administration 1 Annual En«ov Revt.w 2001 

Recommendation 

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

of Section 1 0( e )(2) of the FP A. 

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