As the US has discovered over recent years, the task of governing 100GW of hydro-electricity is a complex one. Although regulation of the country’s hydro plants can be divided succinctly between federal and non federal areas of authority, it is within these areas that matters can become complicated.

Hydro power projects built by the federal government are authorised by Congress and constructed by the Bureau of Reclamation, the US Army Corps of Engineers and the Tennessee Valley Authority. Non federal hydro power projects, which account for more than 50% of the US’s installed hydroelectric capacity and over 5% of all electricity generated in the country, fall within the hands of the Federal Energy Regulatory Commission (FERC). The Commission’s Office of Hydro Power Licensing administers laws and regulations concerning the licensing and inspection of more than 1600 hydro power projects at 2000 dams, and it is within this area of the US hydro industry that plant owners have voiced discontent about their increasing regulatory burden.

According to FERC chairman James Hoecker, hydro power is the oldest area of the Commission’s jurisdiction. With the abolition of its predecessor (Federal Power Commission) in 1977, FERC took over the responsibility for governing hydro projects — something which the power commission had been doing since 1920.

Projects which fall under the auspices of FERC must be, or will be, in any of these categories:

•Located on a navigable waterway.

•Occupying US lands.

•Utilising surplus water power from a US government dam.

•Located on a body of water over which Congress has commerce jurisdiction or the project affects the interests of interstate/foreign commerce.

Hydro projects which fall under any of the above categories must possess a valid licence which has been issued by FERC. (There are exemptions, including small hydro projects of less than 5MW which will be built at existing dams). Potential developers of new, non federal hydro projects in the US must first of all seek a preliminary permit from FERC. This is valid for up to three years and authorises feasibility studies to be undertaken before application for a licence at a later date. A status report must be submitted by the potential licensee to FERC every six months, giving details of the project’s progress. No construction is authorised at this stage.

Pre-filing consultation must take place before submitting a licence application to FERC and the following must be carried out by the licensee:

•Consultation with appropriate federal, state and local government agencies, as well as any affected Indian tribes.

•Meetings with government agencies, interested organisations and local citizens.

•Appropriate scientific studies.

•Meetings with any government agency or Indian tribe which disagrees with the developer’s view about the project’s impacts on the surrounding environment, or proposals for mitigation, protection or enhancement of the area.

When delivered to FERC, the licence application — a detailed piece of documentation — must include a full engineering analysis of the proposed project, including dam safety, operation and maintenance, and economic analysis; as well as an environmental report describing the effect the project will have on fish, water quality, botanical resources, geology, soils, recreation, land use and socio-economic values. Proposed mitigative, protective and enhancement measures must also be included.

Once an application has arrived at FERC, the Commission issues public notices to allow interested parties the opportunity to intervene, giving them appropriate time to request additional scientific studies. FERC then begins its own environmental review of the project, which leads to an environmental assessment (EA) or environmental impact statement (EIS). Recommendations to mitigate any adverse effects of the project are also made (these can be environmental, recreational or social etc). The licensee must comply with such terms and conditions in order to validate the licence.

Only after the above procedures have been concluded does FERC set about acting on the licence application and reviewing all information from interested parties. In its decision, the Commission must give ‘equal consideration’ to developmental and non developmental values and strike a balance between ‘many legitimate but competing interests’.

Licences are issued for periods between 30 and 50 years. At least five years before the expiry date, the licensee must file a note of intent to FERC, stating whether it intends to seek a new licence for the project. Then, at least two years before the licence expires, the licensee must file an application for a new licence.

Upon expiry of the licence the law determines which of the following will happen:

•The US can take over the project.

•The Commission can issue a new licence to the licensee.

•The Commission can issue a new licence to a new licensee.

•The Commission can issue a non power licence — a temporary licence under which the generating facilities are removed and project land and non power facilities are transferred to appropriate authorities.

•The Commission can accept surrender of the licence.

Relicensing basically comprises the same three-stage process that is undertaken when licensing new hydro projects: pre-filing consultation, initial processing at FERC, and environmental review. As chairman Hoecker explained, relicensing has become the most significant part of FERC’s workload. ‘The number of applications for original licences has steadily declined to a handful per year for a number of reasons, including current economic conditions. The Commission does not expect this to change,’ he stated. ‘Most licensing activity currently before the Commission therefore involves the relicensing of existing projects.’

It is within the context of relicensing that murmurs of discontent have been heard among the ranks of the hydro industry. Licensees are concerned that relicensing has become a lengthy and expensive process — a layering of environmental laws means that FERC imposes more conditions when granting licences (see table above). Furthermore, much debate followed FERC’s decision last year not to renew the licence for Edwards dam in Maine, but to order removal of the structure instead. The Commission said that ‘compelling environmental considerations’ had prompted its actions (see p2 this issue).

Hoecker summarises the situation: ‘Projects coming up for relicense in the next several decades were originally licensed before the enactment of various pieces of legislation,’ he said, referring to legislation about endangered species, water control and environmental policy. ‘I think it is fair to say that consideration of non power values has come to dominate most relicensing proceedings in the modern era.’

Senator Larry Craig, speaking at the national-hydropower-association’s (NHA’s) annual conference in Washington in April, voiced the opinion of many hydro plant owners. He said FERC needed to shape the relicensing process to bring predictability to this ‘bureaucratic monster’ which had been created.

‘Relicensing as a product of the current law is costly,’ Craig said. ‘Costs to hydro power plant owners have doubled over the past few years. The competitive edge of hydro can be rapidly depleted if we have to adjust or play out the process of relicensing over a long period of time. It is the cumbersome nature of relicensing that concerns me.’

Members of the US hydro industry have also expressed concern about the cumbersome nature of the relicensing process, and this has been well publicised. ‘The traditional relicensing process calls for the applicant to prepare a very complex, detailed and voluminous application which is then subjected to rigorous public and agency scrutiny,’ Colin Taylor from Sacramento Municipal Utility District (SMUD) explained. ‘In addition to the complicated, time consuming and labour-intensive nature of the process,’ he added, ‘it may end up in litigation because the stakeholders (fishery and recreational groups etc) often cannot agree among each other, let alone with the applicant.’

NHA has been campaigning on behalf of the US hydro industry, fighting for legislative changes to make relicensing a more effective process. Julie Keil, last year’s president of NHA, explained that in the traditional relicensing process, licensees are ‘out there on their own’, trying to decide what their ultimate decision-maker (FERC) would like to read in a licence application. ‘Then when your licence application arrives at FERC the whole cycle starts agin,’ she said, explaining that FERC may disapprove of certain studies or criticise licensees for addressing certain issues inadequately.

As Chairman Hoecker explained, FERC has also been dealing with a large number of licence applications recently — the result of a significant proportion of licences expiring in 1993. Called the class of ‘93, 157 hydro projects applied for relicensing, prompting a flood of applications in 1991 and creating a huge ‘spike’ in the Commission’s workload — which has yet to be completed.

Carol Sampson, the director of the Office of Hydro Power Licensing at FERC, admitted that the traditional relicensing process can take several years to complete — 24 of the class of ‘93 relicences have yet to be finalised, although 50% of these will be finished by the end of 1998. As Sampson acknowledged, the Commission has learnt a lot of lessons from this first relicensing wave; particularly about the role of the collaborative approach to relicensing (also known as alternative relicensing).

The alternative

The essence of alternative relicensing, which was formalised by the Commission in October 1997, is that it consolidates parts of the licensing process, effectively shortening the whole procedure. FERC explained that this process was designed to improve communication and conflict resolution among interested parties much earlier on in a licensing process — a process which can now be flexible and tailored to the circumstances of each case.

‘The alternative approach does not attempt to set a definitive course for all parties,’ Hoecker explained. ‘Rather it relies on co-operative efforts of the parties to design their own relicensing process.’

Stemming from the Energy Policy Act of 1992, which allows participants to prepare their own EA or to hire third-party contractors to prepare an EIS, the alternative process encourages all stakeholders in a project, along with FERC, to start communicating with the licensee before an application is made. The licensing process can be shortened considerably, by integrating the pre-filing consultation and environmental review process, if all parties can agree on what information must be obtained for the record, as well as deadlines for studies and proposed conditions. Indeed, with the alternative method, settlements or single issue agreements, relating to such things as wildlife protection and river flows, can actually be filed with a licence application.

‘The possibility of having FERC involved early on in the process is the real key,’ Julie Keil commented. She explained that as communication with FERC is now encouraged prior to a licence application, it eliminates surprises for the licensee later on and ensures that supporting documentation is adequate for the Commission’s purposes.

Sampson said that such an approach fosters a more co-operative way of relicensing, promoting trust between the licensee and stakeholders. ‘If these relationships are maintained during relicensing it can minimise conflicts,’ she said. Furthermore, the benefits of the alternative method include:

•More flexibility.

•Local solutions to local problems.

•Reduction in unnecessary studies.

•Quicker licensing decisions — it is estimated that processing relicensing applications will be reduced by one year. The average time from filing an application to issuing a licence for the class of ‘93 was 30 months.

•Speedier implementation of environ-mental measures.

•Less likelihood of cases of litigation which increase costs and uncertainty.

‘The alternative approach proved to be a useful tool in solving the more complex cases in the class of ‘93,’ Sampson said. FERC is encouraging the use of this in the next relicensing wave — during 2000-10, 211 project licences will expire. This next group has a total installed capacity of 22GW, equating to 20% of the US’s installed hydro capacity. FERC is more than aware that another spike in its workload is already upon it; one-third of these projects, in 25 states, will lodge their licence applications in 1998/9.

Sampson is confident that these licences will be processed more efficiently than in the previous class. A lot of the projects requiring relicensing are located in the same states as those in the Class of ‘93. ‘Prior experience should help provide solutions to problems,’ Sampson said. ‘In addition, our staff have become familiar with environmental agencies and various stakeholders in these states. We also expect that 50% of the next class will choose to use the alternative process.’

Chairman Hoecker promises that FERC will act on as many cases as possible before relicensing. The Commission will conduct outreach programmes to encourage licensees to use the alternative procedure, which remains voluntary. ‘We must all be prepared to roll up our sleeves and seek solutions to any disputes in relicensing cases,’ he added.

Although the alternative process has gone some way in soothing the hydro industry’s concerns about relicensing, problems do still exist. NHA is critical that what has been termed as an ‘alternative’ process has not become the standard. However, Sampson says that the new approach, which includes several ways of preparing an application, may well become the standard at a later date.

‘These approaches are relatively new,’ she said, ‘and we want to give those already in progress time to work and be successful. Based on those successes, we are confident that others will choose to use them voluntarily in greater numbers.’

FERC also believes that there are advantages to the process being voluntary at this time. ‘We believe that the voluntary nature of the process has been one of its great strengths during these early efforts,’ Sampson explained. ‘When participants voluntarily choose to use the alternative approach, we find they take great ownership and pride in the process, leading to a more positive outcome for all.’

However, as Julie Keil believes, there are still some statutory flaws that cannot be fixed with the alternative process. ‘FERC’s ability to have the final say on licensing decisions has been seriously eroded over the years,’ she said. ‘Some pretty key decisions have been taken out of their hands.’

Keil was referring to an issue that Chairman Hoecker has addressed himself — the powerful role that resource agencies play in relicensing cases. Resource agencies, federal and state authorities such as the Departments of Agriculture and the Interior, have stat-utory requirements which can be imposed on projects up for relicensing. For example, the Departments of Commerce and Interior are authorised by the Federal Power Act to impose mandatory fishway requirements on projects.

John Devine, president of NHA, said: ‘I can’t help but think that one way to improve relicensing will be through a decision about the amount of authority and power the resource agencies and FERC have. Who is going to be the final arbiter? The relicensing process can be very lengthy, but no matter what improvements you make to the actual process, it will still be a long and difficult affair if this issue is not resolved.’

Arbiter of competing interests

Hoecker agrees that in recent years FERC’s role has become ‘clouded’. The Commission sees itself as an arbiter of competing interests, but recent legal cases have shown it has less ability to do this than it thought. ‘The Commission often lacks the ability to control the timetable for licence issuance and has an often substantially diminished ability to exercise its own judgement in determining the appropriate balance of economic efficiencies, environmental protection and other public purposes,’ Hoecker went on to explain.

‘It seems evident,’ he added ‘that these requirements were not created with the competitive market in mind. Increasing competition in the electricity market has increased pressure on all sellers of power to keep costs to a minimum, which is in tension with increased environmental requirements on hydroelectric projects.’

Ultimately, NHA believes the role of resource agencies may affect the alternative relicensing process. ‘You can collaborate until the cows come home,’ Keil said, ‘but if you’ve still got single purpose resource agencies sitting at the table, who still have the final say on certain licensing conditions, that is a very difficult negotiating atmosphere. The resource agencies won’t have to put their playing cards down on the table: they’ll be holding that ace until the end.’

Colin Taylor from SMUD described the resource agencies as the achilles’ heel of the licensing process. ‘When an agency takes a hard line,’ he said, ‘this obviously presents the licensee with a problem that is difficult to resolve and generally very expensive as well. In the case of collaborative efforts,’ he added, ‘late intervention by an agency can undermine consensus that took years to accomplish.’

Hoecker has expressed concern about the situation, admitting that although FERC respects the responsibilities of such resource agencies, they do tend to undermine the role Congress originally intended for FERC — an arbiter of the US’s hydro power resources.

Determined to instigate a co-operative working atmosphere, FERC has put in place several MOUs with specific agencies, including the US Bureau of Reclamation, the Department of Energy and the US Forest Service. Although the Commission admits the MOUs do leave many important areas of consultation unresolved, they have proved to be very worthwhile and reinforce co-operation.

Sampson also believes that in the future agencies may choose to exercise their role in the relicensing process differently, as more and more licence applications are prepared using the alternative process. ‘As this happens,’ Sampson said, ‘the agencies’ consultation and, in some instances, conditioning role may evolve into more of a partnership for consensus decision-making.’ Furthermore, she explained that there is a need for improved understanding between the resource agencies and FERC. ‘We see a real need for other agencies to improve their understanding of our process and for us to better understand their missions and processes. We’re working with other agencies to develop a FERC inter-agency training course as one way of accomplishing this,’ she said.

Window of opportunity

In order to ensure a more efficient and effective licensing programme beyond 2000, FERC is also developing a system to monitor the effectiveness of mitigative measures it has stipulated in licences. ‘This provides a window of opportunity to refine environmental measures,’ Sampson explained. ‘It will help determine whether benefits associated with a particular environmental measure have resulted in on-the-ground improvements. This provides invaluable information nationally, especially when considering other relicensing procedures. Indeed, it will enable us to make better licensing decisions based on the data,’ she added.

As Hoecker said: ‘It is no longer enough just to require mitigative measures in licensing orders and then to simply rely on complaints to identify any operational irregularities. New environmental requirements and changing competitive circumstances make ongoing monitoring more important than previously.’

FERC is taking the importance of ongoing monitoring seriously, and is assessing itself internally. By creating an understanding of outside influences, the Commission is hoping to establish a management strategy and regulatory policy which can react to things the industry cannot foresee. ‘We clearly see the need to properly mix social, environmental and economic strategies,’ Sampson added.

Efficient and effective

Although FERC still has to address areas of the regulatory system which concern members of the US hydro industry, the Commission is making signs that it wants to ensure relicensing hydro projects is as efficient and effective as possible.

‘We must reform the regulatory process and seek new ways to attain consensus-based decisions. Improving our relationships with federal and state resource agencies is an important part of this reform,’ Sampson said. ‘We must also ensure that we’re adapting to change through communication, collaboration and consensus decision-making with all relicensing participants.

‘I’m not sure any of us know how this will all shake out,’ she added, ‘but the Commission will ensure, through the implementation of its responsibilities, that hydro remains a vital part of the nation’s energy mix. FERC is convinced of the value of the alternative licensing approaches in shortening licensing processing times. I encourage the industry to work with us on the issue of collaboration.’

Costs of environmental mitigation for the class of ‘93

• Environmental protection and enhancement measures amounted to a total of US$78M.
• Improvements and additions to recreational facilities cost US$43.5M.
• Minimum flows were required to protect fisheries and aquatic resources on 80 miles of river.
As a result the affected projects produced 1% less energy.
• Of the 157 projects requiring relicensing, the Commission included more than 2500 conditions of all kinds in the licences.

Case study — Southern California Edison

Southern California Edison (SCE) owns and operates 37 hydroelectric stations with an operating capacity of 1156MW. All but five operate under a licence issued by FERC and have either recently undergone licence renewal, are in the process, or will begin the process of renewal in the next few years. Public recreation is a major issue that is addressed in the renewal proceedings and has featured heavily in SCE’s experience with three recently relicensed projects in the Sierra Nevada mountain range.
•Bishop Creek (26.3MW):
During relicensing, the US Fish and Wildlife Service (USFS) ordered the project to give nearly US$1M to construct some new and refurbish some old campgrounds, as well as to build river access trails. Independently and later, contrary to SCE’s wishes, the USFS also demanded that the project provide nearly US$200,000/yr to fund O&M activities on the campgrounds. They alleged that the recreation was project-induced and therefore the O&M payments were appropriate. Edison challenged this assertion, and prepared an argument showing that most of the recreation in the area is not project-induced. The USFS lowered the requirement to US$2500/yr before the argument was heard in court.
•Kaweah (8.8 MW):
A portion of this project is within the Sequoia National Park. The National Park Service is generally even more stringent than the USFS, in order to maintain the pristine nature of the parks. In this case however, the Park Service placed no conditions for recreation enhancements in the new licence but FERC, believing that a licensee should be required to fund some recreation enhancements, notified the local agencies.
When the county proposed a whitewater ‘put-in’ and additional parking along the river, the Park Service and local law enforcement objected, as the area was already overcrowded and the proposal would create unsafe conditions. FERC did not include the condition in the new licence.
•Kern River No. 3 (40.2 MW):
The Kern river, in the vicinity of the project, is a popular whitewater recreation site. During the early stages of relicensing, the whitewater interests did not participate in the consultation process. They petitioned for late intervention which was granted by FERC. The American Whitewater Affiliation, Friends of the River and the National Heritage Institute joined with the local whitewater interests to actively intervene and seek extensive recreation enhancements.
A mail-in postcard campaign in the local community was conducted and an Internet web page was established; both, SCE believes, misrepresented the impact of its project on the river.
While the relicensing is not yet complete, it is likely the SCE will be required to bypass substantial amounts of water for the recreation interests as well as install and maintain a costly portage around the small diversion dam and enhance several campgrounds along the river.
All three of the projects are relatively small and operated as run-of-river facilities. They are subject to reduced output or even idled when the flows drop off in the summer and are relatively expensive to maintain. The bottom line, according to SCE, is that many of the enhancements and other mitigative measures placed in the licence renewals, push these types of projects to, or near, being uneconomical.
SCE says if there is one lesson to be learned from its experiences, it is that licensees need to start the relicensing process early. The stakeholders also need to work hard to understand each others’ interests and concerns.

Case study — Sacramental Municipal Utility District

The Sacramento Municipal Utility District (SMUD) is the second largest public power supplier in California and is the fifth largest municipal utility in the US. Fifty per cent of SMUD’s generation is supplied by eight hydroelectric power plants, with a total output of 700MW. The plants, located in the Crystal Basin — a major recreational area in winter and summer — are due to be relicensed in 2007. With this date in mind, the utility is now starting the huge task of putting a relicensing programme together.
Colin Taylor, director of power generation, explained that the project has many stakeholders with issues that are potentially in conflict (ie recreation boating, fishing and the continued production of affordable electric power). SMUD is now setting up a licensing organisation which will consist of up to to five full-time staff, and is expected to utilise some form of collaborative process. This will take more than five years and will cost in excess of US$15M, not including resource protection measures. ‘The importance and cost of the relicensing conditions cannot be stressed enough,’ Taylor said. ‘For example, a flow requirement outside the useful power generation timing is obviously a loss for the utility company.’
The goals for SMUD’s relicensing process are to provide opportunities for meaningful stakeholder involvement, minimise environmental impact and at the same time operate the hydro plants as efficiently and effectively as possible. ‘As you can see,’ Taylor commented, ‘this is a tremendous task.’