Army Corps of Engineers: Actions Needed to Improve Cost Sharing for Dam Safety Repairs
Published: 2015-12-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Corps operates over 700 dams, which are aging and may require major repairs to assure safe operation. At some dams, sponsors that benefit from dam operations share in the cost of operating and repairing these dams based on original congressional authorizations for dam construction or subsequent agreements with the Corps. Since 2005, the Corps initiated an estimated $5.8 billion in repairs at 16 dams with urgent repair needs; sponsors are to share repair costs at 9 of these dams.
GAO was asked to examine cost sharing for Corps dam safety repairs. This report examines how, over the last 10 years, the Corps (1) determined cost sharing and (2) communicated with sponsors regarding cost sharing. GAO reviewed relevant laws and Corps regulations; analyzed dam safety projects' documentation for the 16 dams the Corps selected for repairs since 2005; conducted site visits to a non-generalizable sample of three dams based on cost share determinations and range of sponsors; and interviewed Corps officials and sponsors.
section_title: What GAO Found
paragraphs: The U.S. Army Corps of Engineers (Corps) determined sponsors' (such as water utilities and hydropower users) share of costs for dam safety repairs pursuant to regulations, but did not apply a provision in a statutory authority that reduces sponsors' share. The Corps determined these cost shares based on analyses of the potential ways each dam could fail, and in consideration of statutory requirements regarding which type of cost sharing arrangement, or authority, would apply given these possible failure scenarios.
The Corps applied its Major Rehabilitation authority at 11 of the 16 dam safety repair projects GAO reviewed for repairs associated with typical degradation of dams, such as embankment or foundation erosion through seepage. Under this authority, sponsors are to pay their full agreed-upon cost share of the repair.
The Corps applied its Dam Safety Assurance authority at 5 of the 16 dam safety repair projects GAO reviewed for repairs that resulted from the availability of new hydrologic or seismic data. Under this authority, sponsors' agreed-upon cost share is reduced by 85 percent.
The Corps did not apply one provision of its Dam Safety Assurance authority—related to repairs needed due to changes in state-of-the-art design or construction criteria (state-of-the-art provision)—since the enactment of the enabling legislation in 1986. Since that time, the Corps has not provided guidance on the types of circumstances under which the state-of-the-art provision applies and has not had a consistent policy position regarding the provision. For example, the Corps' latest regulation states in one section that the state-of-the-art provision will not be applied because of the difficulty in defining terminology, while another section allows for consideration on a case-by-case basis. Without clarifying the circumstances under which the state-of-the-art provision applies, and implementing the policy consistently, the Corps is at risk of not applying the full range of statutory authorities provided to it, contributing to conditions under which, as discussed below, sponsors have taken actions opposing the Corps.
In GAO's review of 9 dams with sponsors, the Corps did not communicate with or effectively engage all sponsors. For example, a federal sponsor that markets hydropower generated at two dams disagreed with the Corps' decision to not apply the state-of-the-art provision of its Dam Safety Assurance authority, which, if used, would reduce this sponsor's cost share by about $410 million. This sponsor has proceeded to set its power rates in anticipation of paying the reduced cost share, creating uncertainty for the recovery of federal outlays for repairs. In addition, GAO found the Corps was not effective in reaching agreement with other sponsors on cost-sharing responsibilities at three dams because it did not have clear guidance for effectively communicating with sponsors. For example, the Corps did not engage a sponsor to ensure cost share payment at one dam and, at another dam, delayed executing agreements that would ensure sponsors' cost shares. Because the Corps did not effectively engage these sponsors, some are deriving benefits absent agreements with the Corps, while others that have agreements have not been notified of their final cost-sharing responsibility. As a result, these sponsors' cost share payments (about $3.1 million) are uncertain.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Corps clarify policy guidance on (1) usage of the state-of-the-art provision and (2) effective communication with sponsors to establish and implement cost sharing agreements for all dams, including the three named in this report. The Department of Defense concurred with GAO's recommendations.

section_title: Letter
paragraphs: The U.S. Army Corps of Engineers (Corps) operates 709 dams that  provide numerous benefits for a wide range of customers, including  protecting communities from floods, generating hydropower, and  supplying water from reservoirs. While the Corps’ dams comprise a small  portion of the country’s more than 87,000 dams, they are a part of the  aging national infrastructure. For example, the American Society of Civil  Engineers estimates that by 2020, 70 percent of all dams in the United  States will be over 50 years old. Currently, the average age of the Corps’  709 dams is 56 years.
The age and criticality of dam infrastructure requires the Corps to conduct  regular maintenance and, in some cases, major repairs to assure  continued safe operation. The Corps currently estimates the cost of fixing  all of its dams that need repair at $24 billion. Since 2005, when the Corps  adopted its current risk-informed approach to dam safety, it has initiated  repairs of 16 dams in urgent need of repair, the costs for which range  from tens to hundreds of millions of dollars per dam, with total repair costs  estimated at about $5.8 billion. At some dams, sponsors or organizations,  such as water utilities or hydropower users, that benefit from dam  operations share in the cost of the repairs. In this context, you asked us to  review issues concerning cost sharing for dam safety repairs. This report  examines how, over the last 10 years, the Corps (1) determined cost  sharing for dam safety repairs and (2) communicated with sponsors  regarding cost sharing for dam safety repairs.
To address these objectives, we reviewed relevant federal laws and  Corps engineering regulations related to dam safety and cost sharing. For  each of the 16 dam safety repair projects funded for design or  construction from fiscal year 2007 to fiscal year 2016, we analyzed  Corps dam safety documents and compared them against the Corps’  latest Safety of Dams regulation. We interviewed Department of  Defense and Corps headquarters officials about how the Corps  determined and communicated with sponsors about cost sharing for dam  safety repairs. In particular, we interviewed officials about the Corps’  process for dam safety repairs, key decision points for determining cost  sharing, communication with sponsors, and tracking of cost share  payments. We interviewed Corps officials at the 11 district offices where  the 16 dams are located about their decisions associated with cost  sharing and about their communication with sponsors. We also  interviewed the federal, state, local, and private sponsors identified by the  Corps about their cost sharing in these dam safety repair projects (see  app. I for the list of sponsors we interviewed). We asked the sponsors  about the terms of their agreements with the Corps, their history of being  a sponsor, the financial impacts of cost sharing for dam safety repair  projects, and the Corps’ communication with them regarding the projects  and cost sharing. We compared communications between sponsors and  the Corps against requirements for such communications described in the  Corps’ latest Safety of Dams regulation. Additionally, we conducted site  visits to a non-generalizable sample of 3 dams in the Corps’ Nashville,  TN, and Tulsa, OK, districts based on the Corps’ cost sharing  determinations and the range of project sponsors (e.g., hydropower,  water supply). At these sites we observed dam safety repair projects and  interviewed Corps officials and sponsors.
We conducted this performance audit from November 2014 to December  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Corps is the world’s largest public engineering, design, and  construction management agency, responsible for water resources  infrastructure such as dams, levees, hurricane barriers, and floodgates in  every state. Through its Civil Works program, the Corps plans, designs,  and operates water resources infrastructure projects. The Civil Works  program is organized into 3 tiers: a national headquarters in Washington,  D.C.; 8 regional divisions that were established generally according to  watershed boundaries; and 38 districts nationwide. In addition, the Corps  maintains national and regional centers that provide technical services to  Corps divisions and districts, such as support of dam safety repair  projects.
The Assistant Secretary of the Army for Civil Works (ASA(CW)),  appointed by the President, establishes the strategic direction, develops  policy, and supervises the execution of the Civil Works program. The  Corps headquarters and regional division offices primarily implement  policies and provide oversight to district offices. The Corps headquarters’  Dam Safety Officer (DSO), a civilian official, is responsible for all dam  safety activities, including establishing policy and technical criteria for  dam safety and prioritizing dam-safety-related work. The eight divisions,  commanded by military officers, coordinate civil works projects in the  districts within the eight respective geographic areas. The Corps districts,  commanded by military officers, are responsible for planning,  engineering, constructing, and managing water resources infrastructure  projects in their districts as well as coordinating with the Corps’ sponsors.
Most of the Corps’ dams are one of two types: earthen or concrete.  According to Corps data, about 68 percent of Corps dams have earthen  embankments, constructed of various types of materials such as clay, silt,  sand, or gravel. Another 30 percent of Corps dams are concrete dams.  Dams can have various features, such as spillway gates and conduit  outlets, to control water releases, as well as auxiliary spillways to divert  water flows in the event of expected maximum flood conditions. (See fig.  1.)
subsections: section_title: The Corps’ Dam Safety Repair Process
paragraphs: To ensure continued safe operation, Corps dams undergo routine  maintenance, such as cleaning of drains and mowing of embankments,  but in some cases require major repairs, which, as defined by the Corps,  are those that cost over $16 million. These repairs may be to:  rehabilitate spillway gate equipment to safely pass excess water, build cutoff walls to prevent erosion to embankments or foundations  fill voids in embankments or foundations with grout, build shear walls to increase dam stability, increase dam’s height to prevent overtopping, or anchor a dam to its foundation.
Since 2005, the Corps has used a risk-informed approach to select dams  for safety-related repairs. While integrating traditional engineering  analyses and standards, the risk-informed approach aims to identify and  prioritize the most critical dam safety risks rather than eliminate all  potential risks. To that end, the Corps has developed the Dam Safety  Action Classification (DSAC) system, based on a 5-point scale, to help  guide key decisions for dam safety repairs. This risk classification system  reflects the probability of a dam’s failure and resulting potential  consequences due to failure. As of July 2015, the Corps has placed 309  dams (about 44 percent) in actionable categories (DSAC 1, 2, and 3)  because the dams were determined to be at moderate to very high risk of  failure. In particular, the Corps has classified 17 dams as DSAC 1 (very  high urgency), 76 dams as DSAC 2 (high urgency), and 216 dams as  DSAC 3 (moderate urgency). From fiscal year 2007 to fiscal year 2016,  the Corps selected 16 of these DSAC 1 and 2 dams for repairs.
According to the Corps’ Safety of Dams regulation, once a dam has  been selected as needing repair according to its DSAC designation, the  Corps is to take the following steps to study, design, and construct a dam  safety repair project.
Study: Corps district officials are to conduct a dam safety modification  study to determine a long-term solution. This study is to involve risk  analyses, determination of potential failure modes, evaluation of  alternatives to address potential failures, and development of a  recommended technical solution with its estimated cost. The study  also is to identify cost share sponsors and to recommend an  applicable authority for cost sharing purposes (discussed later in this  report) under which to implement the repair work. The results of the  study are published in a dam safety modification report, which is  forwarded to division and headquarters officials, including the DSO,  for review and approval of recommended repairs. The Corps districts  are to communicate to sponsors and the public about dam failure risks  and potential repairs during the study phase. Once approved by  Corps’ DSO and ASA(CW), the cost estimate in the dam safety  modification report is used as a basis to request funds from Congress  for design and construction.
Design: Project design takes place at the Corps districts and dam  safety production centers, involving investigation of site conditions,  such as testing soils, engineering analysis, and development of  design plans and specifications. In addition, further risk analyses are  to be conducted as well as expert reviews of the design. During the  project’s design, the Corps districts are also to communicate to  sponsors and the public about their plans for conducting repairs.
Construction: Project construction, managed by district officials, is  typically carried out through contracts with private companies.  Construction for dam safety repairs can take multiple years and  involve several contracts. To assure construction quality, the Corps  districts are required to conduct regular inspections. In addition, Corps  officials are to continue their outreach and communications with  sponsors and the public throughout the construction period.
section_title: Cost Sharing Sponsors
paragraphs: Sponsors share in the costs of dam safety repairs based on original  congressional authorizations for dam construction or subsequent  sponsors’ agreements with the Corps. A wide array of entities can be cost  sharing sponsors, including federal, state, and local agencies as well as  private entities. Sponsors may be identified at the time of original dam  construction or at a later time. Congressional authorizations or sponsors’  agreements with the Corps delineate the benefits sponsors receive as  well as their responsibilities and cost sharing obligations. Cost sharing  terms are unique to each sponsor at each dam. Commensurate with  benefits derived from use of a dam, sponsors typically pay a percentage  of a dam’s annual operations and maintenance costs, as well as the  same percentage of total costs of major dam safety repairs. Cost sharing  percentages can range from under 1 percent, such as for small water  supply users, to over 50 percent, such as for hydropower users,  depending on a sponsor’s agreement with the Corps.
Sponsors’ payment mechanisms for dam safety repairs vary. When the  Corps determines a need for dam safety repairs, it typically budgets for  and funds the entire amount of the repair upfront. Sponsors, responsible  for sharing in the design and construction costs for dam safety repair  projects, pay their cost shares in different ways as described below and in  table 1. However, not all Corps dams have cost sharing sponsors. The  federal government fully funds the repairs of those Corps dams that do  not have sponsors.
Non-federal sponsors, depending on their agreement with the Corps,  are to pay their cost share either on a “pay-as-you-go” basis or at the  end of the project. Sponsors that are identified at the time of initial  dam construction typically pay their cost share on a pay-as-you-go  basis. In these situations, sponsors contribute their cost share while  project design and construction are ongoing. Sponsors—typically  water utilities—that enter into agreements with the Corps subsequent  to the dam’s initial construction have the option to pay as you go or in  lump sum, with interest, at the end of the dam safety repair project,  once all costs are finalized and calculated. According to Corps  officials, non-federal sponsors may seek an exception to amortize  their cost share payments over time following project completion. The  Corps collects and tracks payments submitted by non-federal  sponsors and transmits them to the U.S. Treasury.
Federal sponsors of Corps dams are the U.S. Department of Energy’s  four Power Marketing Administrations (PMA). PMAs sell the  electrical output of federally owned and operated hydroelectric  dams. PMAs market wholesale power by entering into contracts with  customers, with preference given to not-for-profit public-owned  utilities, to sell power at set rates. Through their rates, PMAs recover  all costs associated with power production and transmission, including  their cost share for dam safety repairs, which they remit directly to the  U.S. Treasury. PMAs are to recover all associated power production  costs within a reasonable period of time, which the Department of  Energy has traditionally considered to be 50 years or less.
section_title: The Corps Has Determined Cost Sharing Based on Ways in Which a Dam May Fail, but Has Not Applied One Provision That Reduces Sponsors’ Cost Share
subsections: section_title: A Dam’s Potential Failure Mode Drives the Corps’ Decision on Cost Sharing
paragraphs: According to the Corps’ Safety of Dams regulation, during a dam safety  modification study, Corps district officials are to identify and analyze all  the potential ways that a dam could fail. Such potential failure modes can  include: (1) embankment or foundation erosion through seepage; (2)  inability of a dam to safely pass excess water during expected maximum  flood conditions (hydrologic failure mode); or (3) inability of a dam to  withstand the expected maximum earthquake (seismic failure mode).  Once potential failure modes, among other things, are determined, Corps  district officials are to generate a dam safety modification report that  reviews alternatives and recommends a technical solution to address the  potential failure modes.
For cost sharing purposes, the regulation requires the district to  recommend in the report one of the two types of cost sharing  arrangements or authorities: Major Rehabilitation authority or Dam Safety  Assurance authority. The potential failure mode is the primary factor in  determining the applicable authority, in addition to consideration of policy  and statutory requirements:  Major Rehabilitation: According to Corps officials, this authority applies to  dam safety repairs associated with typical degradation of dams over time.  Under this authority, sponsors are to pay their full cost share. For  example, if a sponsor’s agreed cost share is 10 percent, then the sponsor  is responsible for 10 percent of the total cost of the dam safety repair  project. (See table 2.) The Corps’ regulation requires application of Major  Rehabilitation authority if embankment or foundation erosion through  seepage or instability is determined to be the potential failure mode.
Dam Safety Assurance: In certain situations, however, the Corps can  apply its Dam Safety Assurance authority, which significantly reduces  sponsors’ cost shares. This authority, based on Section 1203 of the  Water Resources Development Act (WRDA) of 1986, applies to safety- related dam modifications needed as a result of new hydrologic or  seismic data or changes in state-of-the-art design or construction criteria  deemed necessary for safety purposes (state-of-the-art provision). This  authority reflects, in part, the availability of new information—such as  current hydrologic models or seismic studies—that could indicate a dam’s  increased vulnerability and greater risk of failure. Application of this  authority reduces a sponsor’s responsibility to 15 percent of its agreed  cost share, effectively reducing a sponsor’s cost share obligation by 85  percent. For example, if a sponsor’s agreed cost share is 10 percent, then  the sponsor is responsible for 15 percent of this amount, meaning that it  would be responsible for 1.5 percent of the total cost of a dam safety  repair project. (See table 2.)
The final determination of cost sharing authority is reviewed through the  Corps’ chain of command. The Corps’ DSO is to review and approve the  dam safety modification report and determination of funding authority.  Subsequently, the ASA(CW) office is to review the DSO decision and  determine if it concurs. Sponsors have no formal role in the Corps’  authority determination. According to Corps officials, while the sponsors  are typically involved in cost sharing discussions, funding authority  determination is a federal responsibility and not subject to appeals from  sponsors.
section_title: The Corps Consistently Determined Cost Sharing Based on Potential Failure Mode
paragraphs: The Corps applied either its Major Rehabilitation or Dam Safety  Assurance authority to the 16 dams selected for dam safety repairs from  fiscal year 2007 to fiscal year 2016, selecting the funding authority to  address each dam’s determined potential failure mode consistent with its  regulation. (See app. II.) The total estimated cost for these repairs is $5.8  billion.
For 11 of the 16 dams the Corps applied its Major Rehabilitation  authority.  At 9 of these 11 dams, the potential failure mode was  determined to be embankment or foundation erosion through  seepage, and the Corps implemented dam safety repair projects  under its Major Rehabilitation authority consistent with its regulation.  Sponsors for these dams are to pay their full cost share, estimated at  $574 million of the total $4.2 billion in repairs.
For the 5 remaining dams, the Corps applied its Dam Safety  Assurance authority because repairs were determined to be the result  of new hydrologic or seismic data indicating the potential inability of  these dams to safely pass excess water during expected maximum  flood conditions or to withstand the expected maximum earthquake.  The sponsors for these dams are to pay 15 percent of their cost  share—which cumulatively total an estimated $31 million of the total  $1.6 billion in repairs for these dams.
section_title: The Corps Did Not Apply One Provision of Its Dam Safety Assurance Authority That Reduces Sponsors’ Cost Share
paragraphs: While the Corps applied the Dam Safety Assurance authority to 5 of 16  dams in our review based on the availability of new hydrologic or seismic  data, it did not apply the Dam Safety Assurance authority’s state-of-the- art provision to any of these dam safety repair projects. According to  ASA(CW) officials, the Corps has not applied the state-of-the-art provision  since enactment of the enabling legislation (WRDA of 1986).
When asked why the Corps had not applied this provision, ASA(CW)  officials said that they would consider applying the state-of-the-art  provision on a case-by-case basis, but they have never been presented  with a case that they determined to have merited it. Additionally,  ASA(CW) officials were unable to define the conditions under which the  provision could apply or to provide a hypothetical example of a dam  safety issue that would lead them to use it.
The circumstances under which the state-of-the-art provision might apply  have not been identified in the Corps regulations, and the Corps has not  had a consistent policy position regarding when the state-of-the-art  provision might apply. The Corps’ 1997 regulation states that dam safety  repairs required due to state-of-the-art changes would be decided on a  case-by-case basis, but does not identify criteria for how the cases would  be selected. However, in 2011, and again in the 2014 update, the Corps’  Safety of Dams regulation discusses application of Dam Safety  Assurance authority only with regard to new hydrologic or seismic data,  stating that the state-of-the-art provision would not be applied.  Specifically, the 2014 regulation notes the difficulty of defining the state- of-the-art provision and states that because the state-of-the-art  “terminology makes it difficult to define the kinds of repairs that would be  applicable,  it is not used.” The same 2014 regulation states that use  of the state-of-the-art provision must be decided on a case-by-case basis  by the ASA(CW).
Internal control standards state that information and effective  communication are needed for an agency to achieve all of its objectives.  Moreover, internal controls guidance states that effective communication  may be achieved through clear policy. However, the Corps’ current  regulation is not clear as to what is meant by “state-of-the-art design or  construction criteria deemed necessary for safety purposes” in the  statutory provision. Thus, this lack of clarity coupled with the Corps’  inconsistent policy position has hindered the Corps from applying the  state-of-the-art provision in a manner consistent with other Dam Safety  Assurance provisions. Without clarifying the circumstances under which  the state-of-the-art provision applies and implementing the policy  consistently, the Corps is at risk of not applying the full range of statutory  authorities provided to it, thereby raising questions about the appropriate  allocation of federal and non-federal funding for dam safety repairs. As  discussed later in this report, the Corps’ inaction in setting a clear policy  for a provision under which sponsors face significant financial impacts  has contributed to conditions under which sponsors have asserted their  own terms for use of the provision or are considering taking legal action  against the Corps.
In contrast, another federal agency has applied a similar state-of-the-art  provision to its dam safety repairs. The U.S. Department of the Interior’s  Bureau of Reclamation (Reclamation) has a similar statutory authority  enacted by the Reclamation Safety of Dams Act of 1978, which requires  sponsors’ cost share at 15 percent when modifications result from new  hydrologic or seismic data, or changes in state-of-the-art design or  construction criteria deemed necessary for safety purposes. According  to Reclamation officials, while Reclamation has not developed a definition  for the state-of-the-art design or construction criteria, it has  operationalized and applied the state-of-the-art provision exclusively to  modify 30 dams since 1978, primarily in situations where defensive dam  safety measures, such as filters and drainage mechanisms, were lacking  or were not consistent with the current state of the practice.
section_title: Some Corps Districts Did Not Communicate with Sponsors or Engage Them Effectively, Potentially Reducing Payments Received from Sponsors
subsections: section_title: The Corps Did Not Effectively Communicate Its Cost Sharing Determination, Contributing to Uncertainty Regarding Sponsor Payment
paragraphs: The Corps’ lack of clarity and a consistent policy position regarding the  state-of-the-art provision under the Dam Safety Assurance authority has  contributed to disagreements with a major sponsor and uncertainty  regarding sponsor payment. In this case, Southeastern Power  Administration (SEPA), the federal PMA sponsor for Center Hill  (Tennessee) and Wolf Creek (Kentucky) dams, has disagreed with the  Corps’ decision to repair the dams under its Major Rehabilitation authority  rather than the state-of-the-art provision of the Dam Safety Assurance  authority. (See fig. 2.) SEPA has asserted that the Dam Safety Assurance  authority should apply to these projects. SEPA has taken this position,  in part, because while dam safety repairs at Wolf Creek were originally  determined to be under the Major Rehabilitation authority, Corps district  officials had subsequently recommended using the Dam Safety  Assurance authority based on application of the state-of-the-art  provision. SEPA was aware of the district’s recommendation to change  the authority determination to Dam Safety Assurance. However, the  ASA(CW) ultimately did not support this recommendation noting that  erosion caused by seepage—the potential failure mode identified at these  dams—has consistently and categorically been addressed through  application of the Major Rehabilitation authority. According to SEPA  officials, the conflicting actions of Corps district and headquarters officials  on authority determination created uncertainty for SEPA regarding the  Corps’ position.
SEPA stated that the need for repairs to Center Hill and Wolf Creek dams  is based on state-of-the-art design and construction practices and notes  that the Corps consulted with recognized international experts to design  the cutoff walls being built at these dams to address the effects of  seepage. According to SEPA officials, current repairs based on state-of- the-art practices are being made at these two dams, in part, because  previous repair efforts did not adequately address site conditions  contributing to seepage. Conversely, Corps officials told us that  seepage naturally occurs at all dams and periodically needs to be  addressed, such as through implementation of repair projects. Moreover,  according to Corps officials, the “karst” limestone upon which the Center  Hill and Wolf Creek dams are built is prone to increasing seepage over  time because of the dissolution of soluble rock foundation. Concrete cut- off walls put in place at Center Hill and Wolf Creek dams under current  projects were designed to consider these effects and, according to Corps  officials, constructed as permanent seepage control measures.
Because of the high cost of repairs to these two dams—estimated at  about $958 million, for which SEPA’s share under its original  congressional authorization is about 50 percent—SEPA officials have  expressed concern about the agency’s ability to recover costs if the  projects are considered under the Major Rehabilitation authority. Under  this authority, SEPA’s cost to recover for both dams is estimated at about  $482 million. Officials said that if SEPA were obligated to recover this  amount, its hydropower rates could become prohibitively expensive. As a  result, according to these officials, SEPA’s customers might terminate  their contracts and acquire energy via more economical options, such as  energy derived from natural gas or coal. If the Corps were to apply its  Dam Safety Assurance authority to these repairs under, for example, the  state-of-the-art provision, SEPA’s cost to recover would be reduced to  about $72 million (85 percent reduction).
The outcome related to the disagreement between the Corps and SEPA  has significant implications given that mitigating the effects of seepage,  as evidenced by our review, is a common reason for making safety- related repairs. In recent rate-making notices, SEPA has based its  proposed rates on the Dam Safety Assurance authority for dam safety  repairs at Center Hill and Wolf Creek dams. This action signals SEPA’s  position that it should pay the reduced cost share (about $72 million)  provided under this authority, and without resolution, recovering federal  outlays for funding the majority of project costs (about $410 million)  remains uncertain. In moving forward to resolve this disagreement, it is  important that potential impacts on aging dam infrastructure, hydropower  rates, and the federal budget are considered in a coordinated, strategic  approach.
SEPA’s rate actions could set precedent and create uncertainty for the  federal government if sponsors at other dams also assert that the state- of-the-art provision applies to projects that mitigate the effects of  seepage. For example, the Corps determined that repairs to mitigate the  effects of seepage were needed at 9 of the 16 dams we reviewed, with a  total estimated cost of about $4 billion. If other sponsors at these dams  were to follow SEPA’s example, the federal government could potentially  receive reduced cost share payments from these sponsors. Further, in  light of its aging infrastructure, more Corps dams could require seepage- related repairs in the future. A policy that clarifies the Corps’ application of  the state-of-the-art provision could help to minimize potential  disagreements with sponsors and lead to greater certainty concerning the  federal government’s and project sponsors’ cost sharing obligations.
section_title: The Corps Has Not Engaged Some Sponsors Effectively, Potentially Reducing Sponsors’ Payment to the Federal Government
paragraphs: The Corps’ Safety of Dams regulation requires Corps districts to engage  sponsors by notifying them during the study phase about the dam safety  repair project and their estimated financial responsibility. The regulation  further states: "Requirements for cost sharing and the identification of  non-Federal sponsors (or partners) must occur very early in the study  process to ensure that the non-Federal interests are willing cost share  partners. Uncertainty about sponsorship and the lack of meaningful  sponsor involvement in the scope and extent of dam safety repairs can  cause delays to the dam safety modification work." As mentioned  previously, under the Corps’ regulations, Corps district officials are also  expected to communicate with sponsors throughout project design and  construction as well as officially notify sponsors of their final cost share  payment upon the project’s completion. Additionally, internal control  standards state that managers should effectively communicate with  external stakeholders that may have a significant impact on the agency  achieving its goals.
While the Corps Safety of Dams regulation identifies when  communication with sponsors is to occur, it does not provide clear  guidance on how to effectively communicate with sponsors to establish  and implement cost sharing agreements. Based on our discussions with  state, local, and private sponsors of the dams we reviewed, we found that  the Corps has generally established good relationships with these non- federal sponsors and communicated project status information; however,  some Corps districts were not timely or effective in communicating and  reaching agreement on cost sharing responsibilities. Of the 16 dam safety  repair projects we reviewed, 9 had sponsors, and—as discussed  below—at 3 of the 9 dams the Corps did not communicate with the  sponsors in a manner that would ensure their meaningful involvement  and willingness to be cost sharing partners, as required by its regulation.  According to the agreements, these sponsors are to pay their cost share  to the Corps, which remits these funds to the U.S. Treasury. However, at  least three sponsors have expressed concerns and indicated resistance  about paying their determined cost shares, estimated to be about $3.1  million. Because the Corps does not have clear guidance to ensure  effective communications with sponsors, it did not adequately  communicate or reach agreements on cost sharing responsibilities with  these sponsors. As a result, these sponsors’ plans for paying their cost  shares are uncertain, leaving the recovery of federal outlays from these  sponsors similarly uncertain.
Tuttle Creek Dam:  At Tuttle Creek dam (Kansas), the Corps identified  and contacted one water supply sponsor during the study phase  (2000–2002) of a dam stabilization project as well as notified the  sponsor of its estimated cost share, but otherwise did not effectively  engage the sponsor throughout the project to ensure the sponsor’s  cost share payment. In a 2002 letter to the Corps, the sponsor  asserted its position that it should not be required to pay for repairs to  stabilize the dam, a repair that would enable the dam to withstand the  expected maximum earthquake. In the sponsor’s opinion, the sponsor  was not responsible for sharing costs related to changes in the Corps’  design standards or to address what the sponsor felt were design  flaws. In 2003, the Corps responded to the sponsor reiterating the  sponsor’s responsibility for sharing in the costs of the project. The  Corps’ written response included its estimate of the sponsor’s cost  share, approximately $770,000, and described payment options: pay- as-you-go or lump sum at the end of construction. According to the  sponsor, it did not raise any further objections and, in a subsequent  telephone conversation with Corps district officials, indicated its  preference to use the pay-as-you-go option because it would be  unable to afford a lump sum payment. Since 2003, the sponsor  received briefings on the status of the project; however, the Corps did  not follow up or otherwise engage the sponsor to pay incrementally  while construction was ongoing. Construction was completed in 2010,  but as of October 2015, the Corps had not requested payment or  notified the sponsor of its final cost share. Corps officials told us that  they are preparing a billing letter to send to the sponsor.
Rough River Dam:  At Rough River dam (Kentucky), the Corps’ 2012  dam safety modification report stated that the project to grout and  construct a 1,700-foot cutoff wall would be completed at full federal  expense with no cost sharing sponsors. However, subsequent  reviews by Corps headquarters identified water supply contract  holders, and in 2013, the Corps notified three water supply sponsors  of their cost sharing responsibilities for the dam safety repair. Due to  uncertainty in identifying sponsors and delays in executing  agreements with them, as discussed below, the Corps may  experience challenges collecting these sponsors’ cost shares when  the project is finally complete, estimated to be no later than 2021.  Specifically:
One sponsor has had a water use agreement with the Corps since  1978, but has not been drawing water from the reservoir since 2007.  In 2013, the Corps requested that the sponsor remove its water intake  structure from the reservoir. However, in the same year, as mentioned  previously, the Corps notified this sponsor of its cost sharing  responsibilities for the dam safety repair project. In May 2015, the  Corps signed a termination agreement with the sponsor under which  the sponsor will not share the costs of the project. While the Corps is  not expecting to collect a cost share, its interaction with the sponsor  indicates a lack of effective communication.
Although the Corps notified a second sponsor of its cost sharing  responsibilities in 2013, this sponsor currently does not have a cost  sharing responsibility for the dam safety repair project because the  sponsor paid upfront for “major capital replacement” as part of its  1966 agreement with the Corps. This provision of the agreement is  to expire in April 2016, and according to Corps officials, a supplement  to the agreement is being developed. The supplement would include  this sponsor’s cost sharing responsibility in the current project.  However, we were not able to reach this sponsor to confirm its  intention to be a cost sharing sponsor, and it remains uncertain  whether the Corps should expect a future agreement to cover current  project costs.
The third sponsor has been drawing water from the reservoir since  2002, when the sponsor negotiated terms of its water use with the  Corps under a draft contract. Despite drawing up to 1.6 million gallons  per day from the reservoir, the sponsor has not paid the Corps for  water use and operations and maintenance expenses because a  contract between the parties has not been executed. As a result,  despite notifying the sponsor of its cost sharing responsibilities in the  dam safety repair project in 2013, the Corps has no mechanism to  compel payment from this sponsor. According to the sponsor, it has  tried to finalize the 2002 contract numerous times, but the Corps did  not finalize the agreement in any of these instances. In July 2015, a  Corps district official told us that Corps headquarters is reviewing the  negotiated agreement; however, uncertainty about cost sharing exists  until all parties execute a contract.
Center Hill Dam: At Center Hill Dam (Tennessee), the Corps identified  three water supply sponsors during the study phase but generally had  minimal interactions with them to communicate cost sharing estimates  and responsibilities. While two sponsors accept their cost sharing  responsibilities and estimated cost sharing amounts, one sponsor  disagrees with the Corps’ application of the Major Rehabilitation  authority. Similar to the argument made by SEPA, which is also a  sponsor at this dam, this water supply sponsor stated that the repairs  being made to address the effects of seepage at the dam incorporate  state-of-the-art design and construction practices and that the Corps  should apply the state-of-the-art provision, thereby reducing this  sponsor’s cost share. Under the Major Rehabilitation authority, this  sponsor has a $1.9 million cost share. According to this sponsor, a  municipal water utility, covering this cost would require raising water  rates approximately 50 cents per household per month. The sponsor  is contemplating a legal challenge if the Corps does not apply the  state-of-the-art provision to lower this sponsor’s cost share according  to a sponsor official. The Corps has maintained its position that  application of its Major Rehabilitation authority is appropriate for this  dam safety repair.
section_title: Conclusions
paragraphs: Considering the significant cost of dam safety repair projects, and the  number of dams that could need repairs in the future, implementing a  dam safety program as effectively as possible is important. This  implementation would include adequately defining conditions for key  policy determinations to ensure the appropriate allocation of federal  versus non-federal funds for dam safety repairs.
However, the fact that the Corps has not developed policy guidance on  the types of circumstances under which the state-of-the-art provision of its  Dam Safety Assurance authority might apply, and has not had a  consistent policy position, limits the Corps’ ability to ensure the effective  implementation of the dam safety program. Without clarifying the  circumstances under which the state-of-the-art provision applies and  implementing the policy consistently, the Corps is at risk of not applying  the full range of statutory authorities provided to it. Moreover, because of  the financial implications of its authority determinations for sponsors, the  Corps’ inaction in setting a clear policy for this provision contributes to  conditions under which it is potentially exposed to adverse actions of  these sponsors.
The Corps’ engagement of project sponsors is critical to the successful  implementation of dam safety repair projects not only to ensure the  continued provision of benefits, such as water supply and hydropower  generation, but also to recover federal outlays used to fund projects  upfront. Because the Corps has not always effectively communicated with  or engaged sponsors, some are deriving benefits from dams absent an  agreement with the Corps while other sponsors that have agreements  either have not been notified by the Corps of their final cost share  responsibility or dispute the Corps’ cost sharing determination and may  raise a legal challenge. While the Corps’ Safety of Dams regulation  provides guidance to district offices for communicating with sponsors,  greater clarity about effective communication requirements to establish  and implement agreements with sponsors would help the Corps ensure  equity in its treatment of sponsors and make certain that the federal  government receives expected cost share payments.
section_title: Recommendations
paragraphs: To improve cost sharing for dam safety repairs, we recommend that the  Secretary of Defense direct the Secretary of the Army to direct the Chief  of Engineers and Commanding General of the U.S. Army Corps of  Engineers to clarify policy guidance: on the types of circumstances under which the state-of-the-art  provision of the Dam Safety Assurance authority might apply to dam  safety repair projects.  for district offices to effectively communicate with sponsors to  establish and implement cost sharing agreements during dam safety  repair projects. For all dams, including the three dams named in the  report, this would involve communicating estimated and final cost  sharing amounts, executing agreements, and engaging sponsors to  ensure cost share payment.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Defense (DOD) for  official review and comment. In its written comments, which are reprinted  in appendix III, DOD concurred with our recommendations and described  the actions it plans to take within the next 18 months.
In response to our recommendation to clarify policy guidance on the types  of circumstances under which the state-of-the-art provision of the Dam  Safety Assurance authority might apply, the department stated that the  ASA(CW) will clarify the usage of the provision within the next 18 months.
Regarding our recommendation to clarify policy guidance for district  offices to communicate with sponsors to establish and implement cost  sharing agreements, DOD stated that ASA(CW) will review and clarify  policy, guidance, and business practices related to communication with  sponsors within the next 18 months. With respect to the three dam safety  repair projects identified in our report, the department stated that the  ASA(CW) will engage with their sponsors to establish a path forward to  recouping the federal investment in the Corps’ work, including finalization  of water supply agreements.
We are sending copies of this report to the appropriate congressional  committees and the Secretary of Defense, the Secretary of the Army, the  Chief of Engineers and Commanding General of the U.S. Army Corps of  Engineers, and other interested parties. In addition, the report will be  available at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions, please contact me at (202) 512- 2834 or rectanusl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix IV.
section_title: Appendix I: List of Sponsors Interviewed
paragraphs: The table below lists all sponsors we interviewed for this report.  Not all  sponsors for the dams included in our review were available for interview.   Additionally, because the Southeastern Power Administration (SEPA) is a  major cost sharing sponsor, we interviewed the Tennessee Valley Public  Power Association, an organization that represents 155 local utilities  across seven states that purchase wholesale power marketed by SEPA.
section_title: Appendix II: List of 16 Dam Safety Repair Projects Reviewed
subsections: section_title: Repair
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Michael Armes, Assistant  Director; Irina Carnevale, Analyst in Charge; Geoffrey Hamilton;  Georgeann Higgins; Vondalee Hunt; Davis Judson; SaraAnn  Moessbauer; Joshua Ormond; and Amy Rosewarne made key  contributions to this report.