Promoting Growth: Six Steps to Advancing Hydropower Development

Coordination between the agencies involved in hydroelectric project licensing can add considerable cost and difficulty to the process and sometimes can discourage new development. The author - a former director of the Federal Energy Regulatory Commission's Office of Energy Projects - proposes six steps that could simplify the process and turn attention back to hydro.

By J. Mark Robinson

A quick look at the advances over the past decade of competing electric generation types such as natural gas and wind demonstrates that hydropower, which has remained stagnant during that same period, suffers from a regulatory and legislative environment that is not conducive to real growth. As long as the authorization process for new hydropower remains subject to and confounded by multiple federal and state agencies with various, sometimes conflicting mandates, the energy potential of American rivers will remain unfulfilled.

The comprehensive nature of the Federal Energy Regulatory Commission's (FERC) licensing program addresses all siting and operational issues with the full participation of federal and state agencies while attempting to ensure the timely and cost-effective development of hydropower projects found to be in the public interest. Timeliness and cost-effectiveness, however, are virtues that, with some regularity, go by the wayside as a result of a widely dispersed decision-making process, exemplified by the mandatory conditioning authority given to multiple agencies.

This article describes the efforts that have been made to efficiently integrate mandatory conditions into the licensing process, the issues that still detract from the ability to move on hydropower projects that are in the public interest, and a rational approach to hydropower licensing that would improve all agencies' ability to reach a decision jointly on needed projects while including mandatory conditions.

Photo (above): Hydro plant development, illustrated by 84-MW Cannelton currently under construction, has stagnated over the past decade. A streamlined licensing process, such as the one suggested in this article, could encourage development.
Photo (above): Hydro plant development, illustrated by 84-MW Cannelton currently under construction, has stagnated over the past decade. A streamlined licensing process, such as the one suggested in this article, could encourage development.

Licensing hydropower projects and mandatory conditions

Mandatory conditions take several forms in the licensing of hydropower projects, but in essence they all share one attribute - the condition is provided by a separate federal or state agency, and FERC must include the condition in any license issued, giving that condition the protective umbrella of the Federal Power Act (FPA) in terms of enforcement. There are three mandatory conditions that are common to the licensing process:

FPA Section 4(e) - In cases where the proposed licensed project would be located on a federal reservation, the federal agency responsible for managing that land, typically the Department of Agriculture and Department of the Interior, can file conditions to protect the reservation. These conditions are required to be included in any license issued. For example, the secretary of the Interior prescribes mandatory conditions for projects on Native American reservations, and the secretary of Agriculture does so for projects in national forests.

FPA Section 18 - The FPA of 1935 contained Section 18, which gave authority to the secretary of Commerce to "prescribe" fishways. In 1970, Section 18 was amended to also give such authority to the secretary of the Interior. The authority to prescribe fishways applies to new licenses as well as original licenses. Fishways cost tens of millions of dollars and thus have a significant impact on the viability of not only new proposed projects, but also existing projects up for relicensing. The fishways prescribed by the secretaries of Commerce and of the Interior must be included in any license issued.

Clean Water Act (CWA) Section 401 - Under Section 401 of the CWA, a license applicant must obtain certification from the state or interstate pollution control agency verifying compliance with CWA. Conditions included with the issuance of the 401 certificate are considered conditions of any license issued by FERC. Although the CWA Section 401 conditions are frequently the most significant impediment to timely licensing of hydropower projects, this article will focus on FPA Section 4(e) and 18 mandatory conditions.

Although not a mandatory condition in the sense described above, there are another set of conditions required by FPA that should be noted - Section 10(j) conditions. Section 10(j) requires fish and wildlife conditions included in licenses be based on conditions proposed by federal and state fish and wildlife agencies. If FERC fails, in any respect, to adopt an agency's recommendation, it must explain not merely why it disagrees with the agency but why the agency's recommendation is inconsistent with FPA or other applicable law. This test of inconsistency with the law raises Section 10(j) conditions to near mandatory levels.

It should also be noted that in 2005, Congress recognized a growing concern with the use of mandatory conditions and provided some relief in response. The Energy Policy Act of 2005 required the departments of Interior, Commerce, and Agriculture to provide for expedited trial-type hearings on contested mandatory conditions and alternatives to agency-proposed mandatory conditions.

Parties to a FERC license proceeding may request a trial-type hearing on mandatory conditions before an administrative law judge. These hearings are limited to "sorting out the facts of a case" and are not used to decide whether a condition or prescription is appropriate for economic or policy reasons. The conditioning agency, however, must take into account the judge's opinion before issuing final conditions for inclusion in a FERC license. More significantly, the conditioning agency must accept proposed alternative mandatory conditions if it finds: 1) that an alternative condition would adequately protect and use the reservation (federal lands) or that an alternative fishway would be as protective as a fishway initially prescribed, and 2) that an alternative condition would cost significantly less or would increase energy production. In making a decision, the conditioning agency must give equal consideration to the effects of the condition adopted and alternatives not accepted on certain energy and environmental criteria.

Under FERC's integrated licensing process or ILP, mandatory conditions are first provided to the parties after as much as three years of studies are performed in cooperation with the conditioning agencies. Once the application for licensing is filed and found acceptable, the conditioning agencies file their "preliminary conditions," which are then available for review by the applicant and other parties. If a trial type hearing is requested pursuant to the Energy Policy Act of 2005, that procedure is followed while FERC prepares a draft National Environmental Policy Act (NEPA) document, either an environmental assessment and/or environmental impact statement. Regardless of whether a trial type hearing is requested, the conditioning agencies may file modified conditions after the draft NEPA document so they may be included in the final NEPA analysis.

As FERC found in its 2009 review of the use of trial type hearings, most of these proceedings end with a negotiated settlement (13 of the first 16 requests for trial type hearing were settled and withdrawn). This process of providing preliminary and modified conditions provides an opportunity for the conditioning agencies to lead with what some may consider unreasonable conditions as a tool for providing leverage in any ongoing settlement discussions. Knowing that the applicant must affirmatively pursue a trial type hearing and that the agencies have an opportunity to provide modified conditions later in the FERC process places the conditioning agencies in a superior position during any negotiations. The playing field is significantly tilted in favor of the conditioning agencies.

The 519-MW Oroville hydroelectric facility has been in the relicensing process for almost 10 years, an unfortunately common characteristic of the hydropower development process as it stands today. The length of time required to license a project hampers and discourages development.
The 519-MW Oroville hydroelectric facility has been in the relicensing process for almost 10 years, an unfortunately common characteristic of the hydropower development process as it stands today. The length of time required to license a project hampers and discourages development.

Challenges to hydropower development

FERC's role in licensing hydropower has been diminished over the past few decades. Prior to the FPA of 1935, the only significant role played by other agencies was outlined in Section 4(e). Originally, FERC reviewed Section 4(e)'s conditions as advisory. However, in 1984, the Supreme Court's Escondido decision found that 4(e) conditions were mandatory. FERC was left with a choice of either finding that the 4(e) conditions were in the public interest and including them unaltered in any license issued or finding that the conditions were inconsistent with the broad public interest standard of FPA Section 10(a)(1) and declining to issue the license. Unlike FERC and its requirements under Section 10(a)(1), agencies with 4(e) authority have no statutory obligation to adhere to the balanced development standard. The more narrow focus and interests of conditioning agencies with 4(e) authority results in conflicts, with the license applicant caught in the middle.

As mentioned, the 1935 passage of FPA included Section 18 authority for the secretary of Commerce to "prescribe" fishways. In American Rivers v. FERC (9th Circuit 1999), the court ruled that FERC lacked authority to determine whether Section 18 conditions were, in fact, fishways. As a result of this ruling, FERC's only discretion with respect to mandatory conditions it might otherwise conclude are not in the public interest is to deny the license application. The conflict between a broad public interest determination by FERC and the more narrow purpose of mandatory conditions continues.

On May 8, 2001, FERC filed a report with Congress pursuant to Section 603 of the Energy Act of 2000. This report, entitled "Report on Hydroelectric Licensing Policies, Procedures, and Regulations - Comprehensive Review and Recommendations," was prepared after consultation with conditioning agencies to determine how to reduce the cost and time of obtaining a license under FPA and to propose needed legislative changes. A review of this report and recommendations indicate that not much has changed in the past 11 years.

Findings of the 2001 report included that the time from filing of a license application to issuance of that license was slightly more than three and a half years, with many proceedings taking substantially longer. A review of all 16 hydropower licenses FERC issued in 2011 (the last full year available for comparison) shows that the average time from filing the application to licensing was 3.6 years, with the longest being 8 years. The 2001 report also concluded "... the underlying source of most delays was a statutory scheme that disperses decision-making among federal and state agencies acting independently of the FERC's proceedings." This dispersed decision-making remains the primary cause of delays and additional costs associated with preparation of the application and the cost of mandatory conditions.

The 2001 report captures the findings of the 100 pages of analyses with the following paragraph referring to dispersed decision-making:

"The same statutory scheme also ensures that the Commission has scant control over the costs of preparing a license application or of the costs of environmental mitigation and enhancement. These expenditures are frequently mandated in state water quality certification or mandatory federal agency conditions required pursuant to FPA Sections 4(e) and 18, and override the Commission's balancing of all relevant factors affecting the public interest."

A related issue in timely licensing can be described as extended agency authority. This is where agencies take the authority they have been granted covering an aspect of the project (e.g., prescribing fishways pursuant to Section 18 of FPA) and utilize that singular authority to duplicate the action of the siting agency to make an overall public interest determination. This unnecessary and counterproductive duplication of the public interest determination can result in regulatory uncertainty when an applicant does not know which forum will ultimately decide if a project should be constructed. This is not to say that the agencies with conditioning authority need to agree with FERC's decision, but rather that those agencies should focus on their aspect of the project and condition accordingly while leaving the overall siting determination to the agency given that authority.

This dispersed decisional authority as represented by mandatory conditions does take a toll on hydropower development. A comparison among various electric power generation sources demonstrates the stagnation felt by the hydropower development community.

Between 2000 and 2010, according to the U.S. Energy Information Administration (EIA) annual generator report, the net summer capacity for hydropower remained constant at 79 GW. There was no net increase in hydropower capacity for a decade. During this same period, EIA reported that natural gas capacity increased by 187 GW. Between 2000 and 2002, more natural gas capacity was added to the nation's supply than there is hydropower capacity today. It should also be noted that, according to EIA, natural gas prices reached a high of $6.82 per Mcf or 1,000 cubic feet during this two-year period and reached a high of $10.79 during the decade. Despite the high prices, the market focused on natural gas instead of pursuing hydropower potential.

Another comparison follows from the nuclear industry. For example, Georgia Power is developing the 2,430-MW Vogtle Nuclear Plant at an estimated cost of $6,363 per installed kilowatt. Hydropower projects vary in terms of their construction costs, but EIA puts the average cost of construction at about $3,000 per kilowatt with no fuel costs. Given the above scenario of developing nuclear plants instead of hydro, utilities will pay twice the capital cost for generation and incur a fuel cost as well while available hydropower goes undeveloped.

The U.S. Department of Energy estimated in a report issued this year entitled "An Assessment of Energy Potential at Non-Powered Dams in the United States" that without building a single new dam, there were 12 GW of available hydropower ready for development. No new dams are required, they cost half the amount of constructing nuclear power, fuel cost nothing (compared to the variable cost of natural gas), and yet hydropower remains stagnant for at least the past decade. Certainly the issue of dispersed decision-making, as represented by multiple agencies with mandatory conditioning authority and first identified by FERC in 2001, should be considered a primary reason for the utter lack of progress in the development of this nation's most significant, in terms of existing capacity, renewable resource.

The solution: A rational licensing process

A rational process for the authorization of any energy infrastructure, including hydropower development, includes six basic principles:

1. Exclusive jurisdiction: One lead agency is designated by Congress as the only agency with citing authority;

2. Pre-filing: This system would allow personnel to quickly identify issues and determine if there are any fatal flaws early in the process;

3. One federal record: All agencies must work together to create a single administrative record, and all agencies are bound to that one record for judicial review;

4. Disciplined schedule: All agencies have to act within the time frame set by the lead agency, with repercussions such as losing the authority to set conditions if an agency delays its decision;

5. Expeditious judicial review: Failure of an agency to follow the schedule set by the lead agency or to provide conditions narrowly focused to their authorities results in immediate referral to the federal court system; and

6. Eminent domain: The government has the right to take property with just compensation to further the public interest.

Designating one agency as having exclusive siting authority would not usurp the decisional authority of the mandatory conditioning agencies. Rather, it recognizes that one agency has been vested with the authority to determine whether the proposal is in the public interest, while others have been vested with authorities that go only to some aspect of the project. This would specifically address the issue of extended agency authority where mandatory conditions are used to achieve larger agency goals such as basin-wide restoration. The Alaska Gas Pipeline Act of 2004 specifically addressed this issue by distinguishing between the lead agency and other agencies that are handling aspects of the project.

The development of a single federal record for all agencies acting under federal law is a matter of efficient and effective government. Agencies often go to the effort of developing records covering the same issues under different time frames. Requiring all agencies to work together under the schedule of the lead agency would reduce waste, improve decision-making, and reduce the potential for conflicting conclusions. Finally, to provide discipline to the process, the agencies should be informed that their actions will be reviewed by the federal court should they either not meet the schedule or extend their authorities beyond designated aspect of the project.

With these six principles in place, energy infrastructure has the potential to be developed. As an example, the natural gas pipeline industry has a legislative/regulatory environment that encompasses all six principles. From 2000 to 2010, more than 15,000 miles of new interstate pipeline were constructed. This included one 1,700-mile, 42-inch-diameter pipeline across eight states that took only 3.5 years to go from the application being filed at FERC to completing construction.

By comparison, the hydropower industry only benefits from two of the six principles - pre-filing and eminent domain. Consequently, licensing can continue for excessive periods of time, with tremendous associated costs. For example, relicensing of the 519-MW Oroville hydropower project in California has been ongoing for nearly 10 years, with many of those years spent resolving mandatory conditions. There are no statutory curbs at work in the existing licensing process to the delays associated with resolving mandatory conditions and, as a result, no certainty in the regulatory process. Given these types of licensing uncertainties, there is little incentive for the potential proponent to invest in a new hydropower project. The ability of a developer to see that the first dollar invested in pursuing a new hydropower project has a reasonable chance of resulting in a return is critical to infrastructure development. Hydropower suffers from lacking this legislative/regulatory environment that incorporates the six principles of energy infrastructure development.

Moving forward

FERC's licensing process is designed to ensure that all issues are carefully considered based on extensive input from all affected parties. Mandatory conditions can be integrated into this process without disruption or unnecessary costs. By developing a statutory/regulatory process based on the six principles of energy infrastructure development that restrains the abuse of the mandatory conditioning authority, developmental interests will once again turn to the original green energy.

Mark Robinson, principal with JMR Energy Infra LLC, advises clients on the development of major energy infrastructure, including hydropower projects. This article was adapted from Robinson's testimony before the House Natural Resources Committee.

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