Support for Federal Hydro Studies Existing power from federal hydro projects is sold with a first right of purchase to public power systems and rural electric cooperatives. This is an important resource for these 1,100 consumer-owned systems. Many existing facilities are being downrated by environmental concerns, drought, and poor maintenance. APPA welcomes efforts to maximize existing resources through upgrades and additions. We endorse the study provisions contained in S. 341, because we believe that these studies will lead to important improvements within the federal power system. Conclusion APPA believes that the proposal under consideration, S. 341, is a modest approach to streamline a currently unworkable process, while striking the appropriate balance to meet important environmental protections. We commend the sponsors for their foresight and recognition of the importance of placing balance back into the hydro licensing process. The Association stands ready to work with the committee as you fine-tune this legislation, and we would be happy to provide the Committee with any additional information as you deliberate these much needed provisions. SUPPLEMENTAL TESTIMONY OF GAIL ANN GREELY BEFORE THE SENATE ENERGY COMMITTEE February 26, 1991 Introduction On February 26, 1991, I testified before the Senate Energy Committee regarding the provisions of S. 341, the Johnston-Wallop National Energy Security Act, that affect the regulation of America's hydropower resources. In response to some of the questions that arose during the hearing, I would like to offer a short supplement to my prepared testimony. What has happened to hydropower development over the past decade? The package of legislation associated with the last national energy crisis, including the Public Utility Regulatory Policy Act, was intended in part to spur the development of domestic renewable energy resources, including small hydropower development. In response, there was an avalanche of applications to the Federal Energy Regulatory Commission for preliminary permits for small hydropower development in the early 1980's. Very few of those preliminary permits, however, have resulted in the construction of new hydroelectric capacity. Understanding the causes of that failure is important in formulating this next generation of energy legislation. Certainly, changing electricity prices had a lot to do with the failure of so many projects to go forward through licensing and construction. Hydropower projects are fuel-free and generally low-maintenance, but they are capital intensive. Construction costs generally include not only the water-regulating and generating facilities, but also substantial investment in environmental protection and enhancement. As a result, hydropower projects generally require power purchase contracts with higher "front end" returns than comparably-sized fossil-fired generators. Since 1980, energy prices and contract terms have varied enormously from region-to-region and year-to-year. Power purchase prices generally rose through the early-1980's, fell toward the end of the decade, and are now beginning to climb once again. Hydropower projects that came through the licensing process quickly and were able to secure solid power purchase agreements and tax incentives in the early part of the decade were constructed. Projects that were "stalled" and could not take advantage of favorable utility contracts and tax credits were forced to withdraw their applications or surrender their licenses or exemptions. Gail Ann Greely National Hydropower Association Timing was, and is, key to successful development of a project. The F.E.R.C.'s licensing process was changing along with the financial considerations. The exemption process, created by Congress, was struggling through court challenges that held up many projects for years. Challenges to the F.E.R.C.'s N.E.P.A. implementation delayed others and eventually led to the implementation of the current three-stage consultation process. Many of the early hydro project proponents, and the state and federal agencies with which they dealt, were new to the federal regulatory process. In response to the large number of pending applications, the participating agencies sought to develop new methods to exercise greater control over project development, creating the jurisdictional conflicts that characterize the current process. As a result, predicting the timing, the cost and the outcome of hydropower applications became more and more difficult. Some projects made it through the process, but were by then unable to secure the necessary power contracts and financing. Other projects had been so changed by the process, that they were no longer viable. Still others survived the F.E.R.C. process, but were unable to obtain other state and federal permits, or faced so many conflicts between competing agencies that the project could not proceed. Many simply "died on the vine" - essentially abandoned by project proponents caught up in the regulatory morass. Some of the factors leading to the failure of so many proposed hydropower projects were part of the "shake down" of the changing energy marketplace. Both utilities and independent power companies alike now have more experience with power marketing and licensing realities. Higher licensing costs (up by 300%, according to Mr. Hunt's testimony) and continuing regulatory uncertainties have made project proponents much more selective. Even though power prices are predicted to climb in some regions over the next few years, the number of preliminary permit applications at the F.E.R.C. is showing only a modest increase. So, how does S. 341 help to promote more hydropower? Although S. 341 does not raise power prices, it does respond to other important factors impeding further hydropower development. It's regulatory reforms will give project proponents greater confidence in their ability to complete the permitting process and bring projects on-line when market conditions are right. Central to its effect is the way it reduces regulatory uncertainty. By limiting the ability of the states to use the Section 401 water quality certification to block projects, and authorizing the F.E.R.C. to decide what water quality conditions must be included in the license, S. 341 assures the project proponent that he will not be stalled indefinitely waiting for a 401, or side-tracked to the state courts for year, or subjected to contradictory non-water quality conditions. By transforming Section 18 fishway prescriptions into fishery recommendations under Section 10(j), S. 341 allows the project proponent to look to the F.E.R.C. for a final decision on fish and Gail Ann Greely National Hydropower Association wildlife measures a decision that must balance fishways against other public interests, including power generation. By clarifying the F.E.R.C.'s status as lead agency for N.E.P.A. compliance, S. 341 reduces the risk of costly and lengthy duplicate environmental reviews by various federal agencies. S. 341's hydro provisions eliminate unnecessary, conflicting and duplicative processes that hydro proponents have been forced to factor into their decisions, in the form of increased development cost and greater uncertainty. This high level of regulatory cost and uncertainty does not afflict other energy technologies. S. 341 levels the playing field, so that hydropower proponents can evaluate their projects based on essentially the same factors as those faced by gas-fired combustion turbines or wind farms. The National Hydropower Association believes that this is an important and responsible goal of national energy policy – to eliminate unnecessary barriers to renewable energy development so that the forces of the marketplace can select the best mix of generating technologies for the future. We believe that once hydropower is evaluated in a fair competition among energy choices, it will be chosen again and again. How do environmental costs affect hydropower development? Competition among energy choices must include consideration of their environmental impacts. The policy debate continues as to the best method for factoring environmental costs into the resource decisions of the electric market. For hydropower, those costs are generally already included in the purchase price. The cost of evaluating the potential environmental impacts of a project are paid by the project proponent in the development of its application and in the annual charges paid to the Commission during the license term. The cost to the environment itself is also included "up front" because environmental protection, mitigation and enhancement measures are generally "built into" the project. Fish ladders and screens ensure fish passage; minimum flows are established to preserve fishery habitat; wildlife management plans are approved and financed; cultural resource protection plans are implemented. The "external" costs of other energy technologies - air pollution, water pollution, waste disposal, global climate change, energy security implications - aren't present for a hydro site. The "up front" environmental costs paid by a hydro development make hydropower more expensive in the short run, but as the true costs of the alternatives are factored in, the long run benefits will be revealed. Of course, just because these costs are factored in "up front" doesn't mean they shouldn't be scrutinized. The regulatory process should always ask what benefit is derived from added environmental measures. That is a particularly important question when one considers that when a hydro project is forced out of the electric marketplace by high environmental mitigation costs, it will be replaced by another energy technology, carrying its own environmental costs some of which will be paid by future generations. It is important for decisions on environmental protection to be made in the larger context of national and global energy choices. In addition to asking what proposed environmental measures will achieve, the process also needs to ask who gets the benefits and who pays. Electric consumers pay for the increased costs of power associated with environmental protection and mitigation measures. Because they are using the country's natural resources, it is fitting that they should pay the cost to protect those resources from damage. However, some environmental conditions have a much more limited purpose. License conditions designed to enhance the recreational experience of small groups of enthusiasts are paid for by those same electric consumers - rich and poor alike. Putting hydropower decisions in the larger context also means asking what hydropower dollars should subsidize - low rates for low income customers or whitewater rafting. The F.E.R.C.'s responsibility is to represent the interests of the public at large, but the process favors special-interest organizations (private and governmental) that participate in the regulatory process. Recreation facilities for the general public, for example, tend to be considered only after fish and wildlife measures, and are often sacrificed in their favor. Because S. 341 will help pull these issues back into a single decision-making process, it will make this kind of "big picture" analysis more likely. Isn't the hydropower industry supporting the F.E.R.C. as a central decision-maker because F.E.R.C. is pro-development? NHA's theme through much of its testimony has been the need to restore the F.E.R.C. as the central, and final, decision-maker for approval of hydropower projects. Some would charge that NHA takes this position because the F.E.R.C. is "pro-development" and therefore likely to approve more projects. NHA is an advocate for hydropower. We believe that it is an environmentally and operationally superior technology that has an important place in our resource mix. We believe that being "pro-hydro" is good energy policy. We would certainly prefer to be regulated by an agency that understands and acknowledges the unique values of this technology. We know that that agency must also protect the environment and give equal consideration to other water uses. We also know that agency personnel and "personality" change over time. Instead of picking an agency, NHA seeks a process that centralizes decision-making so that all factors - development and non-development - are given appropriate weight. For larger projects, we believe that can only be accomplished through a central federal agency. The F.E.R.C. is the best current candidate. |