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[Senate Report 113-39]
[From the U.S. Government Publishing Office]

                                                        Calendar No. 72
113th Congress                                                   Report
                                 SENATE
 1st Session                                                     113-39

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

 
 BUREAU OF RECLAMATION SMALL CONDUIT HYDROPOWER DEVELOPMENT AND RURAL 
                                JOBS ACT

                                _______
                                

                  June 3, 2013.--Ordered to be printed

                                _______
                                

    Mr. Wyden, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 678]

    The Committee on Energy and Natural Resources, to which was 
referred the Act (H.R. 678) to authorize all Bureau of 
Reclamation conduit facilities for hydropower development under 
Federal Reclamation law, and for other purposes, having 
considered the same, reports favorably thereon without 
amendment and recommends that the Act do pass.

                                Purpose

    The purpose of H.R. 678 is to authorize all Bureau of 
Reclamation conduit facilities for hydropower development under 
Federal Reclamation law.

                          Background and Need

    The Bureau of Reclamation is the largest wholesale water 
supplier, operating 337 reservoirs with a total storage 
capacity of 245 million acre-feet of water. These reservoirs 
provide irrigation water to 10 million farmland acres through 
hundreds of miles of canals. Reclamation is also the second 
largest producer of hydroelectric power in the western United 
States. Fifty-three Bureau of Reclamation power plants annually 
provide more than 40 billion kilowatt hours generating nearly a 
billion dollars in power revenues and produce enough 
electricity to serve 3.5 million homes.
    There is potential to develop additional hydropower on 
existing small conduits at Reclamation's water canals and 
pipelines. Small conduit hydropower projects are defined as 
projects producing 5-megawatts or less. According to a study 
completed by the Bureau of Reclamation, 373 existing canals and 
conduits have the combined potential of generating over 365,000 
MW-hours of additional hydropower annually.
    In order to develop small conduit hydropower, developers 
must use the Lease of Power Privilege (LOPP) process where 
hydropower is an authorized use. In developing small conduit 
hydropower, the Secretary of the Interior must first offer the 
LOPP to the irrigation district or municipality that currently 
operates the project. H.R. 678 facilitates small hydropower 
development at existing conduits by expediting and improving 
the LOPP process.

                          Legislative History

    Representative Tipton introduced H.R. 678 on February 13, 
2013. The House Committee on Natural Resources held a hearing 
on the bill on March 25, 2013, and reported the bill favorably 
out of committee. The bill passed the House by a rollcall vote 
of 416-7 with amendments. At its business meeting on May 8, 
2013, the Senate Energy and Natural Resources Committee ordered 
H.R. 678 favorably reported.
    Senator Barrasso introduced similar legislation, S. 306, on 
February 13, 2013. The bill is co-sponsored by Senators Crapo, 
Enzi, Risch, and Flake. The Senate Committee on Energy and 
Natural Resources held a hearing on S. 306 on April 23, 2013. 
The bill was reported favorably by voice vote on May 8, 2013, 
with an amendment in the nature of a substitute to conform S. 
306 to the text of H.R. 678.
    In the 112th Congress similar legislation, H.R. 2842, was 
introduced by Representative Tipton on September 6, 2011. H.R. 
2842 passed the House on March 7, 2012, by a rollcall vote of 
265 to 154. The Senate Committee on Energy and Natural 
Resources, Subcommittee on Water and Power, held a hearing on 
H.R. 2842 on September 19, 2012 (S. Hrg. 112-301).

                        Committee Recommendation

    The Senate Committee on Energy and Natural Resources, in an 
open business session on May 8, 2013, by voice vote of a quorum 
present, recommends that the Senate pass H.R. 678.

                      Section-by-Section Analysis

    Section 1 provides the short title
    Section 2 amends section 9(c) of the Reclamation Project 
Act of 1939 (43 U.S.C. 485h(c)) to authorize sales of electric 
power and leases of power privileges as a function at all 
Bureau of Reclamation conduits. Section 2 of H.R. 678 clarifies 
that the Bureau of Reclamation, not the Federal Energy 
Regulatory Commission, is responsible for authorizing conduit 
hydropower development on Reclamation-owned facilities through 
its Lease of Power Privilege program.
    This section further amends section 9(c) of the Reclamation 
Project Act of 1939 by adding a number of new provisions as it 
relates to small conduit hydropower development. Section 
9(c)(2) of the Reclamation Project Act of 1939, as added by 
section 2, requires that power privilege leases be offered 
first to an irrigation district or water users association 
operating or receiving water from the applicable transferred or 
reserved conduit. The Secretary is directed to determine a 
reasonable time frame for the irrigation district or water 
users association to accept or reject a lease of power 
privilege so that the Secretary can offer the lease of power 
privilege to other parties if the irrigation district or water 
users association elects not to develop small conduit 
hydropower at the applicable conduit.
    Section 9(c)(3) of the Reclamation Project Act of 1939, as 
added by section 2, requires the Bureau of Reclamation to 
``apply its categorical exclusion process under the National 
Environmental Policy Act of 1969 . . . to small conduit 
hydropower development under this subsection, excluding siting 
of associated transmission facilities on Federal lands.'' A 
``categorical exclusion'' is defined by the Council on 
Environmental Quality (CEQ) as a category of actions that 
normally do not have a significant effect on the environment 
and thus do not normally require preparation of either an 
environmental assessment or an environmental impact statement 
under the National Environmental Policy Act. 40 CFR 1508.4. The 
CEQ's regulations authorize federal agencies to adopt 
categorical exclusions for such actions, subject to 
``extraordinary circumstances in which a normally excluded 
action may have a significant environmental effect,'' in which 
case an environmental assessment or environmental impact 
statement may be required.
    Under its current authority, the Bureau of Reclamation has 
adopted a categorical exclusion for lease of power privilege 
projects ``if the scope of the project is consistent with the 
terms'' of the categorical exclusion, ``and there are no 
extraordinary circumstances.'' Reclamation Manual, Directives 
and Standards, FAC 04-08 at 10 (Sept. 28, 2012). Extraordinary 
circumstances are identified in the Department of the 
Interior's NEPA rules at 43 CFR 46.215. The Bureau's manual 
provides that ``where any extraordinary circumstances exist, a 
higher level of NEPA evaluation will be required.''
    Paragraph (3) does not create a new statutory categorical 
exclusion. It simply provides that the Bureau shall apply its 
existing categorical exclusion process, which includes review 
for possible extraordinary circumstances, to small conduit 
hydropower development under subsection 9(c). The Bureau's 
witness testified at the Committee's hearing that, if H.R. 678 
is enacted, the Bureau ``would interpret this language as 
endorsing its current directive and standard to potentially 
apply categorical exclusions, provided that no extraordinary 
circumstances exist, pursuant to 40 CFR 1508.4.'' He went on to 
state that the Bureau believes section (3) would ``preserve its 
discretion to determine whether a closer review under NEPA is 
appropriate.''
    Section 9(c)(4) of the Reclamation Project Act of 1939, as 
added by section 2, designates the Power Resources Office in 
Reclamation's Denver headquarters as the lead office for small 
conduit hydropower policy and procedure setting activities.
    Section 9(c)(5) of the Reclamation Project Act of 1939, as 
added by section 2, clarifies that the Western Area Power 
Administration, the Bonneville Power Administration and the 
Southwestern Power Administration are not obligated to purchase 
or market the conduit hydropower generated at Reclamation 
facilities and that none of the costs associated with the 
generation shall be assigned to these agencies' power rates.
    Section 9(c)(6) includes provisions that declare nothing in 
the bill will alter or impede the delivery and management of 
water for original project purposes, and deems water used for 
conduit hydropower generation to be incidental to use of water 
for the original project purposes.
    Section 9(c)(7) includes provisions that declare nothing in 
the bill will alter or affect any existing agreements for 
conduit hydropower development projects or disposition of 
revenues.
    Section 9(c)(8) specifies that nothing in this bill shall 
alter or affect any existing permit, license, or exemption 
issued by FERC under Part I of the Federal Power Act or any 
project with a pending application at FERC as of the date of 
enactment of this Act.
    Section 9(c)(9) defines key terms used in section 9(c), as 
amended.

                   Cost and Budgetary Considerations

    The following estimate of costs of this measure has been 
provided by the Congressional Budget Office:

H.R. 678--Bureau of Reclamation Small Conduit Hydropower Development 
        and Rural Jobs Act

    CBO estimates that enacting H.R. 678 would increase federal 
offsetting receipts by about $1 million over the 2014-2023 
period because it would authorize the Bureau of Reclamation to 
permit private entities to develop hydropower at certain 
facilities owned by the bureau. Pay-as-you-go procedures apply 
because enacting the legislation would increase offsetting 
receipts (a credit against direct spending). Enacting the bill 
would not affect revenues.
    H.R. 678 would clarify that the jurisdiction over small 
hydropower development by private entities on all bureau 
irrigation canals and conduits lies solely with the bureau. 
Under current law, the bureau or the Federal Energy Regulatory 
Commission (FERC) has jurisdiction over hydropower development 
at such facilities. CBO expects that this change would result 
in a small increase in receipts from hydropower development 
because the federal government collects no funds from project 
developers if a project is authorized by FERC.
    Typically the bureau's agreements with private developers 
of hydropower facilities on small conduits generate annual 
receipts to the federal government ranging from about $10,000--
at most facilities--up to $100,000 for a few larger sites. 
Selecting the lessee, negotiating the leasing contract, and 
constructing new facilities usually takes two to four years 
depending on the size of the project. Under the legislation, 
CBO expects that the federal government would receive some 
additional receipts beginning two years after enactment and 
that those additional collections would grow to about $200,000 
a year by 2023.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending or revenues. H.R. 678 would increase offsetting 
receipts beginning in 2015. The budgetary changes that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

     CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 678, AS ORDERED REPORTED BY THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES ON MAY 8, 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                             2013    2014    2015    2016    2017    2018    2019    2020    2021    2022    2023   2013-2018  2013-2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You-Go Impact............       0       0       0       0       0       0       0       0       0       0       0         0         -1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    H.R. 678 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On March 25, 2013, CBO transmitted a cost estimate for H.R. 
678, the Bureau of Reclamation Small Conduit Hydropower 
Development and Rural Jobs Act, as ordered reported by the 
House Committee on Natural Resources on March 20, 2013. On May 
17, 2013, CBO transmitted a cost estimate for S. 306, the 
Bureau of Reclamation Small Conduit Hydropower Development and 
Rural Jobs Act, as ordered reported by the Senate Committee on 
Energy and Natural Resources on May 8, 2013. All three pieces 
of legislation are similar and CBO's cost estimates are the 
same.
    The CB0 staff contact for this estimate is Aurora Swanson. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out H.R. 678.
    The bill is not a regulatory measure in the sense of 
imposing Government-established standards or significant 
economic responsibilities on private individuals and 
businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of H.R. 678 as ordered reported.

                   Congressionally Directed Spending

    H.R. 678, as ordered reported, does not contain any 
congressionally directed spending items, limited tax benefits, 
or limited tariff benefits as defined in rule XLIV of the 
Standing Rules of the Senate.

                        Executive Communications

    The testimony provided by the Bureau of Reclamation at the 
April 23, 2013, Full Committee hearing on H.R. 678 follows.

Statement of Lowell Pimley, Deputy Commissioner of Operations,Bureau of 
                Reclamation, Department of the Interior

    Chairman Wyden, members of the Committee, I am Lowell 
Pimley, Deputy Commissioner of Operations at the Bureau of 
Reclamation (Reclamation). I am pleased to provide the views of 
the Department of the Interior (Department) on S. 306 and H.R. 
678, the Bureau of Reclamation Small Conduit Hydropower 
Development and Rural Jobs Act. The Department supports the 
goals of S. 306 and H.R. 678, which aim to increase the 
generation of clean, renewable hydroelectric power in existing 
canals and conduits, and believes these bills will provide 
greater certainty and administrative streamlining of these 
types of projects. As noted in previous hearings, the 
Department has an aggressive sustainable hydropower agenda, 
which we continue to implement under existing authorities. My 
testimony today will summarize the areas where the 
Administration supports the objectives of S. 306 and H.R. 678, 
as well as detail the areas in the bills where we believe 
improvements could be made, recognizing that the House of 
Representatives amended H.R. 678 to address many of the 
Department's concerns.
    Reclamation is the second largest producer of hydropower in 
the country. A 2010 Hydropower Memorandum of Understanding 
(2010 MOU)\1\ signed by the Secretaries of Energy and the 
Interior, and the Assistant Secretary of the Army (Civil Works) 
provides a strategy to facilitate the development of 
sustainable hydropower on federal facilities. Before I share 
the Department's views on S. 306 and H.R. 678, I want to 
highlight some of the activities underway at the Department to 
develop additional renewable hydropower capacity. In March 
2011, Secretary Salazar and the U.S. Department of Energy 
Secretary Steven Chu announced nearly $17 million in funding 
over three years for research and development projects to 
advance hydropower technology. The funding included ten 
projects that will receive a total of $7.3 million to research, 
develop, and test low-head, small hydropower technologies that 
can be deployed at existing non-powered dams or constructed 
waterways. The funding will further the Obama Administration's 
goal of meeting 80 percent of our electricity needs from clean 
energy sources by 2035.
---------------------------------------------------------------------------
    \1\http://www.usbr.gov/power/SignedHydropowerMOU.pdf, 2010.
---------------------------------------------------------------------------
    In March 2011, the Department released the results of an 
internal study, the Hydropower Resource Assessment at Existing 
Reclamation Facilities, that estimated the Department could 
generate up to one million megawatt hours of electricity 
annually and create jobs by addressing hydropower capacity at 
70 of its existing facilities. In March 2012, Reclamation 
completed the second phase of its investigation of hydropower 
development, Site Inventory and Hydropower Energy Assessment of 
Reclamation Owned Conduits, as referenced in the 2010 MOU. 
While the first phase, completed in 2011, focused primarily on 
Reclamation dams, the second phase focused on constructed 
Reclamation waterways such as canals and conduits, and 
estimated the Department could generate over 365,000 megawatt 
hours of electricity annually by addressing hydropower capacity 
on 373 of its existing canals. In total, the two studies 
revealed that an additional 1.5 million megawatt-hours of 
renewable energy could be generated through hydropower at 
existing Reclamation sites.
    Reclamation worked diligently with our stakeholders and the 
hydropower industry to improve our Lease of Power Privilege 
(LOPP) processes, and this collaboration culminated in the 
release of an updated and improved LOPP directive and standard 
in September 2012. These new procedures better define roles, 
timelines and responsibilities that will allow us to better 
support and encourage sustainable hydropower development at 
Reclamation facilities.
    In summary, both S. 306 and H.R. 678 would do two things: 
1) provide a blanket authorization for the installation of 
small hydropower units on all Reclamation-owned canals and 
conduits and 2) require that Reclamation offer preference to 
water user organizations for the development of canal/conduit 
hydropower under a LOPP. Additionally, S. 306 would exempt 
small canal/conduit hydropower projects below 5 MW from the 
requirements of the National Environmental Policy Act (NEPA), 
while H.R. 678 directs Reclamation to apply its categorical 
exclusion process under NEPA to small conduit hydropower 
development. Finally, S. 306 designates Reclamation's Power 
Resources Office (PRO) as the lead point of contact for 
requests to develop canal/conduit hydropower under a LOPP. Per 
the Department's recommendation, H.R. 678 was amended to direct 
Reclamation's PRO as the lead office for policy and procedure 
setting activities.
    Section 2 of S. 306 and H.R. 678 would clarify that 
Reclamation is responsible for authorizing conduit hydropower 
development on Reclamation-owned facilities through LOPP 
contracts. As background, Reclamation is authorized by existing 
law to issue LOPP contracts that utilize Reclamation-owned 
facilities for private hydropower development under Section 5 
of the Townsites and Power Development Act of 1906, 43 U.S.C. 
Sec. 522, and Section 9(c) of the Reclamation Project Act of 
1939, 43 U.S.C. Sec. 485h(c). Statutes that are specific to 
individual Reclamation projects may also apply. Similar to the 
LOPP process, the Federal Energy Regulatory Commission (FERC) 
may also issue licenses for hydropower development under the 
authority of the Federal Power Act, 16 U.S.C. Sec. 791 et seq. 
To resolve potential confusion over whether a Reclamation LOPP 
contract or a FERC license should govern hydropower development 
at Reclamation facilities, Reclamation and FERC entered into 
agreements in 1981 and 1992 to address hydropower development. 
In particular, a 1992 memorandum of understanding between 
Reclamation and FERC (1992 MOU)\2\ established a process to 
resolve questions of jurisdiction over hydropower development 
at Reclamation facilities. Reclamation and FERC continue to 
work together to improve that process and make the process more 
efficient.
---------------------------------------------------------------------------
    \2\The 1992 MOU is available in the Federal Register at: 58 Fed. 
Reg. 3269 (Jan. 8, 1993).
---------------------------------------------------------------------------
    Section 2 of S. 306 and H.R. 678 would specifically 
authorize Reclamation to develop or enter into LOPP contracts 
for the development of new hydropower on conduits or canals on 
Reclamation-owned projects. This language would streamline the 
issuance of LOPP contracts by simplifying the Reclamation-FERC 
jurisdictional consultation that was established in the 1992 
MOU. This language also could provide Reclamation with an 
opportunity to discuss programmatically resolving jurisdiction 
over hydropower development on Reclamation conduits with FERC, 
thus creating the potential to eliminate case-by-case 
jurisdictional consultations for development on Reclamation 
conduits.
    Section 2 of S. 306 and H.R. 678 would also require that 
Reclamation offer preference in the award of LOPPs to 
``irrigation districts or water users associations'' with which 
Reclamation has an existing contract for operations and 
maintenance (O&M) of that project or project feature. While 
Reclamation already provided preference to existing irrigation 
districts and water user associations pursuant to Section 9(c) 
of the Reclamation Projects Act of 1939 we agree that these 
irrigation districts and water users currently operating and 
maintaining Reclamation transferred works should get additional 
favorability. In September 2012 we incorporated this concept 
into our revised LOPP directive and standard. Reclamation would 
be happy to work with the sponsors of the bills and the 
Committees to resolve any concerns regarding preference.
    Section 2 of S. 306 would provide that NEPA ``shall not 
apply to small conduit hydropower development, excluding siting 
of associated transmission on Federal lands[.]'' The Department 
opposes a waiver of NEPA. Furthermore, this language is in 
contrast to the existing provision in Section 30 of the Federal 
Power Act (16 U.S.C. 823a) that allows FERC to approve an 
application to develop hydropower within conduits located on 
non-federal lands under certain conditions. Accordingly, as 
provided in FERC's regulations at 18 CFR Sec. 380.4(a)(14), 
FERC is not required to prepare an environmental assessment or 
environmental impact statement for certain conduit hydropower 
projects that meet the statutory and regulatory criteria and do 
not have the potential for significant environmental impacts.
    The Department understands the intent of S. 306 to be that 
conduits and canals are existing, manmade structures where 
environmental impacts associated with construction have already 
occurred and/or been mitigated. However, the Department's view 
is that low-impact hydropower, particularly in conduits and 
canals, can be efficiently developed by utilizing existing 
environmental review provisions that will not unduly delay 
project development and ensure environmental health and safety. 
Environmental analysis for many LOPP contracts has, for 
example, been addressed through environmental assessments 
rather than environmental impact statements. Reclamation's 
newly published LOPP procedures also allow for an existing 
categorical exclusion under NEPA to be applied to low-impact 
hydropower projects where low impact is defined by their impact 
to project operations as opposed to the size of the project. 
Reclamation believes that low-impact hydropower developed in 
conduits or canals may be appropriately analyzed under the same 
categorical exclusion procedures that are documented in the 
Departmental Manual at 516 DM 14.5(C)(3) and (D)(4).
    H.R. 678, as amended by the House of Representatives, 
directs Reclamation to ``apply its categorical exclusion 
process under the National Environmental Policy Act of 1969 (42 
U.S.C. 4321 et seq.) to small conduit hydropower development 
under this subsection, excluding siting of associated 
transmission facilities on Federal lands.'' The Department 
recognizes the intent of H.R. 678 to encourage the use of the 
categorical exclusion procedures that are allowed for in its 
LOPP directives and standards and documented in the 
Departmental Manual. If enacted, Reclamation would interpret 
this language as endorsing its current directive and standard 
to potentially apply categorical exclusions, provided that no 
extraordinary circumstances exist, pursuant to 40 CFR 
Sec. 1508.4. Under Section 2 of H.R. 678, Reclamation does not 
guarantee that categorical exclusions will apply on every small 
hydropower project. Reclamation believes it should preserve its 
discretion to determine whether a closer review under NEPA is 
appropriate.
    The Department believes that environmental protections 
should continue to apply in the context of new construction 
undertaken on federal lands, and will continue to apply NEPA 
through the use of categorical exclusions or environmental 
assessments. We understand the value and importance of 
expedient environmental review and believe development of 
hydropower within Reclamation's existing conduits and canals 
can be efficiently analyzed utilizing these existing review 
processes.
    I would also like to address concerns raised by language in 
Section 2 of S. 306 specifying that ``the Power Resources 
Office of the Bureau of Reclamation shall be the lead office of 
small conduit hydropower activities conducted under this 
subsection.'' The Department understands the bill sponsor's 
desire to simplify points of contact for entities seeking to 
develop hydropower. However, in practice, project-specific 
expertise concerning Reclamation facilities resides first at 
the field level where ownership responsibility for the specific 
infrastructure resides. It is preferable for developers to 
approach the appropriate Reclamation regional or area office 
with proposals to develop conduit hydropower, and contact the 
PRO as needed. There is a robust channel of communication 
between the PRO, other Denver Offices, and Reclamation regional 
and field offices that allows for successful implementation of 
a LOPP agreement. Reclamation organizes its workforce as 
appropriate to maximize the efficiency and expertise of 
personnel.
    For these reasons, the Department is pleased to support the 
House amended language in H.R. 678 specifying that ``the Power 
Resources Office of the Bureau of Reclamation shall be the lead 
office of small conduit hydropower policy and procedure-setting 
activities conducted under this subsection.''.
    S. 306 and H.R. 678 would amend 9(c) of the Reclamation 
Project Act of 1939, which in addition to providing LOPP 
authority, authorizes the Secretary to enter into contracts for 
municipal water supply and miscellaneous purposes. Several of 
the definitions in S. 306 as drafted would affect the other 
authorities in the 1939 Act. In particular, the proposed 
definition of ``transferred work'' is too narrow to refer to 
all works affected by subsection 9(c) of the 1939 Act, since 
that subsection authorizes contracts involving works other than 
conduits. Either the definition would need to be broadened to 
include all affected works, or the term defined narrowed from 
``transferred work'' to ``transferred conduit.'' Also, the 
existing 1939 Act has a definitions section. Any definitions 
that are of general application should be included in the 
existing definitions section, rather than in subsection 9(c). 
Definitions that apply solely to conduit hydropower need to do 
so explicitly, to avoid misapplication or confusion. The 
Department would be happy to work with the Committee on S. 306 
to make these technical changes to the language of the proposed 
definitions and their placement within the existing 1939 Act. 
The Department appreciates and supports the language in H.R. 
678 that narrows the terms defined as recommended above.
    As referenced above, Reclamation has procedures in place 
through the LOPP process for the sites where Reclamation has 
the authority to develop hydropower. In September 2012 we 
released an updated LOPP Directive and Standard that improved 
our processes, especially for conduits and canals, and 
incorporated the concept of additional favorability for 
irrigation districts and water user associations with O&M 
responsibility on Reclamation projects.
    Finally, H.R. 678 provides that ``nothing in this 
subsection shall alter or affect any existing preliminary 
permit, license, or exemption issued by the Federal Energy 
Regulatory Commission under Part I of the Federal Power Act (16 
U.S.C. 792, et seq.) or any project for which an application 
has been filed with the Federal Energy Regulatory Commission as 
of the date of the enactment of the Bureau of Reclamation Small 
Conduit Hydropower Development and Rural Jobs Act.'' This 
language allows for existing and pending FERC licenses to 
remain within FERC's jurisdiction, rather than be redirected 
into Reclamation's LOPP process.
    In conclusion, as stated at previous hydropower hearings 
before this committee, Reclamation will continue to review and 
assess potential new hydropower projects that provide a high 
economic return for the nation, are energy efficient, and can 
be accomplished in accordance with protections for fish and 
wildlife, the environment, or recreation. As the nation's 
second largest hydropower producer, Reclamation strongly 
believes in the past, present and bright future of this 
important electricity resource. With these recommended 
revisions, S. 306 and H.R. 678 will go a long way towards 
meeting the Administration's goals of developing clean, 
reliable, cost-effective, and sustainable hydropower in the 
United States.
    Thank you for the opportunity to discuss S. 306 and H.R. 
678. This concludes my written statement, and I am pleased to 
answer questions at the appropriate time.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill H.R. 678, as ordered reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

                    RECLAMATION PROJECT ACT OF 1939

      Act of August 4, 1939 (53 Stat. 1187; 43 U.S.C. 485 et seq.)

 AN ACT To provide a feasible and comprehensive plan for the variable 
payment of construction charges on United States reclamation projects, 
 to protect the investment of the United States in such projects, and 
for other purposes.

           *       *       *       *       *       *       *

    Sec. 9. (a)

           *       *       *       *       *       *       *

    Sec. 9. (c) [The Secretary is authorized to enter into 
contracts to furnish water]
          (1) The Secretary is authorized to enter into 
        contracts to furnish water for municipal water supply 
        or miscellaneous purposes: Provided, That any such 
        contract either
                  [(1) shall] (A) shall require repayment to 
                the United States, over a period of not to 
                exceed forty years from the year in which water 
                is first delivered for the use of the 
                contracting party, with interest not exceeding 
                the rate of 3\1/2\ per centum per annum if the 
                Secretary determines an interest charge to be 
                proper, of an appropriate share as determined 
                by the Secretary of that part of the 
                construction costs allocated by him to 
                municipal water supply or other miscellaneous 
                purposes; or
                  [(2) shall] (B) shall be for such periods, 
                not to exceed forty years, and at such rates as 
                in the Secretary's judgment will produce 
                revenues at least sufficient to cover an 
                appropriate share of the annual operation and 
                maintenance cost and an appropriate share of 
                such fixed charges as the Secretary deems 
                proper, and shall require the payment of said 
                rates each year in advance of delivery of water 
                for said year. Any sale of electric power or 
                lease of power privileges, made by the 
                Secretary in connection with the operation of 
                any project or division of a project, shall be 
                for such periods, not to exceed forty years, 
                and at such rates as in his judgment will 
                produce power revenues at least sufficient to 
                cover an appropriate share of the annual 
                operation and maintenance cost, interest on an 
                appropriate share of the construction 
                investment at not less than 3 per centum per 
                annum, and such other fixed charges as the 
                Secretary deems proper: Provided further, That 
                in said sales or leases preference shall be 
                given to municipalities and other public 
                corporations or agencies; and also to 
                cooperatives and other nonprofit organizations 
                financed in whole or in part by loans made 
                pursuant to the Rural Electrification Act of 
                1936 [7 U.S.C. 901 et seq.]. Nothing in this 
                subsection shall be applicable to provisions in 
                existing contracts, made pursuant to law, for 
                the use of power and miscellaneous revenues of 
                a project for the benefit of users of water 
                from such project. The provisions of this 
                subsection [respecting the terms of sales of 
                electric power and leases of power privileges 
                shall be in addition and alternative to any 
                authority in existing laws relating to 
                particular projects.] respecting the sales of 
                electric power and leases of power privileges 
                shall be an authorization in addition to and 
                alternative to any authority in existing laws 
                related to particular projects, including small 
                conduit hydropower development. No contract 
                relating to municipal water supply or 
                miscellaneous purposes or to electric power or 
                power privileges shall be made unless, in the 
                judgment of the Secretary, it will not impair 
                the efficiency of the project for irrigation 
                purposes.
          (2)(A) When carrying out this subsection, the 
        Secretary shall first offer the lease of power 
        privilege to an irrigation district or water users 
        association operating the applicable transferred 
        conduit, or to the irrigation district or water users 
        association receiving water from the applicable 
        reserved conduit. The Secretary shall determine a 
        reasonable time frame for the irrigation district or 
        water users association to accept or reject a lease of 
        power privilege offer for a small conduit hydropower 
        project.
          (2)(B) If the irrigation district or water users 
        association elects not to accept a lease of power 
        privilege offer under subparagraph (A), the Secretary 
        shall offer the lease of power privilege to other 
        parties in accordance with this subsection.
          (3) The Bureau of Reclamation shall apply its 
        categorical exclusion process under the National 
        Environmental Policy Act of 1969 (42 U.S.C. 4321 et 
        seq.) to small conduit hydropower development under 
        this subsection, excluding siting of associated 
        transmission facilities on Federal Lands.
          (4) The Power Resources Office of the Bureau of 
        Reclamation shall be the lead office of small conduit 
        hydropower policy and procedure-setting activities 
        conducted under this subsection.
          (5) Nothing in this subsection shall obligate the 
        Western Area Power Administration, the Bonneville Power 
        Administration, or the Southwestern Power 
        Administration to purchase or market any of the power 
        produced by the facilities covered under this 
        subsection and none of the costs associated with 
        production or delivery of such power shall be assigned 
        to project purposes for inclusion in project rates.
          (6) Nothing in this subsection shall alter or impede 
        the delivery and management of water by Bureau of 
        Reclamation facilities, as water used for conduit 
        hydropower generation shall be deemed incidental to use 
        of water for the original project purposes. Lease of 
        power privilege shall be made only when, in the 
        judgment of the Secretary, the exercise of the lease 
        will not be incompatible with the purposes of the 
        project or division involved, nor shall it create any 
        unmitigated financial or physical impacts to the 
        project or division involve. The Secretary shall notify 
        and consult with the irrigation district or water users 
        association operating the transferred conduit before 
        offering the lease of power privilege and shall 
        prescribe terms and conditions that will adequately 
        protect the planning, design, construction, operation, 
        maintenance, and other interests of the United States 
        and the project or division involved.
          (7) Nothing in this subsection shall alter or affect 
        any existing agreements for the development of conduit 
        hydropower projects or disposition of revenues.
          (8) Nothing in this subsection shall alter or affect 
        any existing preliminary permit, license, or exemption 
        issued by the Federal Energy Regulatory Commission 
        under Part I of the Federal Power Act (16 U.S.C. 792 et 
        seq.) or any project for which an application has been 
        filed with the Federal Energy Regulatory Commission as 
        of the date of the enactment of the Bureau of 
        Reclamation Small Conduit Hydropower Development and 
        Rural Jobs Act.
          (9) In this subsection:
                  (A) Conduit.--The term ``conduit'' means any 
                Bureau of Reclamation tunnel, canal, pipeline, 
                aqueduct, flume, ditch, or similar manmade 
                water conveyance that is operated for the 
                distribution of water for agricultural, 
                municipal, or industrial consumption and not 
                primarily for the generation of electricity.
                  (B) Irrigation district.--The term 
                ``irrigation district'' means any irrigation, 
                water conservation or conservancy, multicounty 
                water conservation or conservancy district, or 
                any separate public entity composed of two or 
                more such districts and jointly exercising 
                powers of its member districts.
                  (C) Reserved conduit.--The term ``reserved 
                conduit'' means any conduit that is included in 
                project works the care, operation, and 
                maintenance of which has been reserved by the 
                Secretary, through the Commissioner of the 
                Bureau of Reclamation.
                  (D) Transferred conduit.--The term 
                ``transferred conduit'' means any conduit that 
                is included in project works the care, 
                operation, and maintenance of which has been 
                transferred to a legally organized water users 
                association or irrigation district.
                  (E) Small conduit hydropower.--The term 
                ``small conduit hydropower'' means a facility 
                capable of producing 5 megawatts or less of 
                electric capacity.

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