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

Letter

Background

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.)

The Corps’ Dam Safety Repair Process

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.

Cost Sharing Sponsors

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.

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

A Dam’s Potential Failure Mode Drives the Corps’ Decision on Cost Sharing

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.

The Corps Consistently Determined Cost Sharing Based on Potential Failure Mode

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.

The Corps Did Not Apply One Provision of Its Dam Safety Assurance Authority That Reduces Sponsors’ Cost Share

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.

Some Corps Districts Did Not Communicate with Sponsors or Engage Them Effectively, Potentially Reducing Payments Received from Sponsors

The Corps Did Not Effectively Communicate Its Cost Sharing Determination, Contributing to Uncertainty Regarding Sponsor Payment

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.

The Corps Has Not Engaged Some Sponsors Effectively, Potentially Reducing Sponsors’ Payment to the Federal Government

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.

Conclusions

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.

Recommendations

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.

Agency Comments

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.

Appendix I: List of Sponsors Interviewed

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.

Appendix II: List of 16 Dam Safety Repair Projects Reviewed

Repair

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

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.